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Silver price analysis in January 2021: buy the recent weakness?

By Jayson Derrick

Edited by Alexandra Pankratyeva

14:00, 13 January 2021


The price of silver more than doubled off its 2020 lows but ended the year around $3 off from its highs. The commodity had a strong December to close out the volatile and unusual trading year and investors are naturally wondering what’s in store for silver in January 2021 and beyond?

2020 recap: from $18 down to $12 then up to $30

Silver entered 2020 trading near $18 an ounce and fell to the $12 level in unison with nearly every other asset class at the end of the first quarter. By March, it was evident that the spread of the novel coronavirus has reached all corners of the world and no country would be spared.

The health and financial impact were very unclear at the time and investors weren’t taking any chances with any of their holdings, especially those that historically acted as a safe haven amid volatility.

But the price of silver along with other commodities and many stocks sharply rebounded in April. Within a few short months, many asset classes, including silver, recovered back to their pre-Covid levels.

Investor appetite for silver and other physical commodities grew by default after substantially higher US and other government spending measures were quickly introduced to support the global economy.

Silver went on to trade at around $30 an ounce by August, followed by a few weeks of trading mostly sideways during a relatively quiet period for the markets.

The silver chart analysis shows that the price of silver was trading in a range between $22 and $26 an ounce from September through December. But the last week of December was highlighted by a clear break above the $26 resistance level and silver closed 2020 with buying momentum near the $27 level.


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Silver price analysis in January 2021: supportive catalysts

To say that the 2020 holiday season was a quiet period for global assets would be a mistake.  Silver in particular was running hot through the end of November and went on to record a noteworthy gain of 20 per cent over the final few weeks of the year.

Silver ended 2020 near the $27 an ounce level and this implies it was trading at its highest levels since September.

The bullish case for silver in January 2021 and beyond is based on the assumption that the rollout of the Covid-19 vaccine will proceed without any major setbacks. If successful, the global economy will rid itself of the virus that served as the most noteworthy headwind in many decades.

Silver in particular would see a lift in demand as it has many industrial uses.

Many countries ended 2020 with record-high Covid-19 infection and/or death rates and this would also be supportive of silver (and gold) as a safer destination compared to stocks.

Ironically, either scenario is supportive of the silver price in 2021.

Last, a historical silver analysis shows that the commodity moves in the opposite direction of the US dollar. A falling US dollar versus a basket of global currencies means silver is likely to rise in value and vice versa. As of January 2021, the US dollar was trading near its lowest levels in more than two years and there are no short-term signs of a recovery.

In fact, expectations are high for President-elect Joe Biden to waste no time in introducing new stimulus packages that would add even more pressure to the greenback. He can do so after an early January special Senate race in Georgia gave him and the Democrats control of all branches of the government.

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By default, this latest silver price news would be supportive of silver upside.

Key silver levels to watch

Investors looking to place a trade and want to better understand the silver price January outlook should take a look at the silver chart and understand several key levels that could determine the commodity’s direction.

Three support and resistance levels are based on silver technical analysis and consist of:

Silver support and resistance

Addressing the recent weakness

Silver’s momentum took a back seat in early January as the commodity lost around 10 per cent on Friday, January 8, 2021. The selling pressure continued into Monday’s session but this shouldn’t have come as a surprise to technical analysis gurus.

First, silver’s momentum off its late November lows around $22 pushed the silver trading price to the upper Bollinger Band. As a reminder, an asset’s price that approaches the upper Bollinger Band suggests overbought conditions.

Second, the relative strength index (RSI) shifted to overbought territory in the back half of December and once again at the very end of 2020.

The charts were flashing signs of a tired rally heading into 2021. But after the dip, is the commodity a good buy?

If you would like to have a clear vision of how to make a trade on silver right now, take a closer look at our detailed silver price analysis in January 2021 in a short video by market strategist David Jones. 

Evaluating a 2021 trade

The silver price January outlook is complex with many moving short-term and long-term pieces. As such, evaluating a trade in January 2021 might work best if using the silver chart since late November.

The silver chart shows a rebound in silver prices on November 30 and was followed by a few days of buying momentum. Silver hit a wall towards mid-December but the chart shows a breakout as of December 15, 2020. The commodity ended the month near a multimonthly high above $27 with a good amount of upside versus the trendline just shy of $26.

As the saying goes, the trend is your friend and expectations call for further upside in silver in January and beyond.

However, there is certainly a short-term risk to the trade, even after a 20 per cent surge to end the year was only cut in half after the recent weakness. So investors buying silver may want to give themselves some leeway and set a stop at the December 21 level of around $24.90.

Buying silver amid short-term weakness isn’t the worst of ideas, so long as silver holds the $25 level. Any short-term weakness should be considered a buying opportunity as the silver catalysts make the case for a retest of its highs of around $30.

Read more: Facebook stock forecast for 2021: is now a good time to buy FB shares?

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The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
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