On August 11th, market analyst Muhammad Umair wrote that silver is approaching a critical bottom supported by strong technical indicators and historical price patterns. The weakening of the US dollar and the decline in bond yields have created a favorable environment for the rise of silver. The expectation of monetary easing has increased the attractiveness of silver as a safe haven asset. The gold to silver ratio has reached a critical resistance level, indicating a possible rebound in silver prices.

Silver prices are about to hit bottom

Silver has reached a strong support level for 2024, as indicated by the key support areas shown in the daily chart below. The blue channel line in the chart highlights this key support. The red dashed line below the channel forms a descending widened wedge.

The intersection of the red trend line and the blue trend line indicates that this intersection is a key support area. This region may represent a long-term bottom for silver prices and could trigger a strong rebound.

The ratio of gold to silver has reached an important resistance zone, indicating that the bottom of silver is approaching.

When the ratio reaches its peak, it usually indicates that gold is performing significantly better than silver, leading to a possible bottoming out of silver prices. From a historical perspective, after these peaks, there will be reversals, and silver's performance will begin to outperform gold, leading to a strong rebound in silver prices. Therefore, the peak of the gold silver ratio can be seen as a signal that silver is preparing to rebound, indicating a potential bottom and an opportunity for investors to take advantage of the expected rise in silver prices.

In addition, monetary easing and the weakening of the US dollar also have an impact on silver.

The current financial environment is characterized by stable market liquidity, with the Chicago Fed Financial Condition Index dropping to -0.546, as shown in the following chart.

This indicates that a monetary easing policy is about to be introduced. This situation is favorable for silver, as lower interest rates and increased liquidity make precious metals more attractive as safe haven assets. With the relaxation of the monetary environment, investors often seek to hedge against potential inflationary pressures and currency depreciation, thereby driving demand for silver. This demand may lead to upward pressure on silver prices, especially in an environment where financial markets expect the Federal Reserve to continue implementing loose monetary policy.

CME's Federal Reserve Watch tool shows a high likelihood of a 50 basis point rate cut in September, with a total of 100 basis points cut by the end of the year, which could have a bullish overall impact on silver prices. Lower interest rates lower the opportunity cost of holding silver, making it more attractive to investors looking for cash and bond alternatives.

As the US dollar weakens and bond yields decline, silver denominated in US dollars becomes cheaper for foreign investors, which may increase global demand. The decline in bond yields has also reduced the attractiveness of fixed income investments, leading investors to turn to precious metals.

Silver still faces risks

Although silver prices seem to be about to bottom out, some market risks may hinder the expected rebound. One of the main risks is economic uncertainty, as stronger than expected global economic growth or sudden financial instability may alter the demand dynamics for silver.

In addition, if the Federal Reserve decides to raise interest rates instead of lowering them as expected, the attractiveness of silver may weaken, putting downward pressure on prices. In addition, a sudden rebound of the US dollar may make silver more expensive for foreign investors, thereby reducing global demand and potentially triggering a price drop.

Another major risk is the possibility of a reversal in the gold silver ratio. The current expectation is that the resistance level of this ratio will remain unchanged, which means that silver prices will hit bottom. However, if this resistance level fails and the ratio continues to rise, the expected rebound of silver may be delayed. In addition, lower than expected inflation may reduce the demand for silver as an inflation hedge tool, limiting its upward momentum despite favorable technical indicators.

Finally, market sentiment and geopolitical factors also pose risks to the rise of silver. If investor sentiment shifts towards risk assets, especially if the US stock market performs well, investment in safe haven assets may decrease. The improvement of geopolitical stability may further reduce the demand for silver as a protective asset, which may prevent the expected price surge. These factors highlight the importance of closely monitoring the overall market situation, as despite the optimistic technical outlook, they may significantly affect the trend of silver.

In short, silver is shifting from a key point, and multiple factors unanimously indicate that an important bottom is forming. The combination of strong technical support, historically bullish price patterns, and a weak US dollar creates a favorable background for the potential rebound of silver prices.

In addition, broader economic conditions, including expected monetary easing and declining bond yields, may enhance the attractiveness of silver as a safe haven asset. With the exertion of these forces, silver's positioning may experience sustained upward momentum, making it an attractive investment opportunity. Spot silver has strong support at the levels of $26.90 and $25, making it attractive for long-term investment potential.

Daily chart of spot silver