Silver price on edge as Bank of America analysts lifts target to $20

The silver price is sitting around the $15 per troy as bulls and bears wait for the next catalyst. At the same time, investors are increasing their exposure on the metal, according to the Financial Times.

Investors snap cheap silver

Silver price dropped to an 11-year low of $11 in March this year during the market selloff. The decline was spread across the commodities sector, with other metals declining as well. The price bounced back and reached a high of $15.82 as the market recovered. In the past few weeks though, the price has been in tight consolidation as the market waits for a catalyst.

According to the FT, many investors are increasing their exposure to the metal because they believe it is undervalued. Most of them are citing the gold-to-silver ratio, which rose to a 5,000-year high of 125 in March. The ratio has since then dropped to about 113 and these investors expect the metal to rise further.

Other investors are quoting the price of gold, which is inching closer to its all-time high of $1920. These investors say that as gold gets pricier, other speculators will start to looking for bargains in the silver market. Indeed, according to the CFTC, the speculative net positions for silver were more than 25.5k in the previous week. An analyst at Highbury Capital told the FT:

“It’s not the most complicated argument but it’s true. As the speculative fever increases retail investors will go crazy. And then when they’re feverish you’re close to the top.”

Just last week, a Canadian billionaire Eric Sprott made a $42 million investment in MAG Silver, a big silver miner. Similarly, analysts at Bank of America and Standard Chartered have been optimistic about the metal. In fact, those at BoA expect the price to reach $20 in the next 12 months. They cite the 440% rally silver price had after the past financial crisis.

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Silver price forecast

On the daily chart, we see that silver price found strong resistance near the 50% Fibonacci retracement level. This retracement joined the YTD high and low. We also see that the price has formed a bullish pennant pattern, which is usually a sign that the price will resume the upward trend. Therefore, while the silver price is in consolidation, I expect it to resume the upward trend as bulls target the 61.8% retracement level at 16.13.

On the other hand, a move below 14.50 will invalidate this thesis. This price is slightly above the 38.2% retracement and is also an important psychological level.

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