Spot silver prices are off 18 per cent from their recent highs, making commodity investor jittery. From a high of Rs 1,77,794 per kg in the spot market (Ahmedabad), silver rate has fallen to Rs 1,45,967 per kg.
Apurva Sheth, Head of Market Perspectives & Research at SAMCO Securities, said silver had entered overheated territory and that the euphoria among retail participants was a classic sign of a short-term top. The latest chart of Silver futures (MCX) now confirms that view, he said.
“After a spectacular rally from Rs 1,10,000 to Rs 1,70,000 per kg, silver has formed a textbook Head and Shoulders pattern, a well-known reversal formation that typically signals exhaustion after a sharp uptrend. Prices have already broken below the neckline, with current levels near Rs 1,40,000 coinciding almost perfectly with the 50 per cent Fibonacci retracement of the prior rally,” he said.
Sheth said the levels of Rs 1,38,000 to Rs 1,40,000 is a critical short-term support, where a technical bounce is likely.
“However, if this level breaks decisively, Silver could retrace further towards the Rs 1,33,000 (61.8 per cent Fibonacci) level before finding stronger buying interest,” he said.
In short, the metal’s correction is healthy and well within the bounds of a bull-market pause. “The excess froth we warned about is now being washed out. Once sentiment cools and technical supports hold, this correction could set the stage for the next leg higher in Silver’s long-term uptrend,” he said.
Sheth said he continued to believe the long-term bullish thesis on precious metals remains intact, but short-term caution, as highlighted earlier, has clearly paid off.