Silver lining: a case for a precious metals retracement

Suggesting that gold and especially silver may be due a reasonable retracement rally after being taken to the woodshed through much of the first half of the year can sound a little gauche. In one sense, that is a good sign. The market has moved from an excessive, one-dimensional bull mania, with RSI readings off the charts, to a narrative now widely regarded as dated. That is often when structure has a better chance to develop.

On the charts, that process does appear to be taking shape. Silver looks like it can outperform and is tentatively breaking up from its recent base and back into the final spike down, although it needs to clear 63~. Gold is similar, and still needs a close above July’s 4,202 high to complete a base above 4,000 and open the way towards 4,339 (the 38.2% retracement of the 2026 decline).

Figure 1: Silver daily, attempting to build base for retracement rally

Source: Datastream, CE

The sell-off has left its mark on the longer charts, and there is unlikely to be a one-way reversal. A decent bounce, further chop, and only then a possible renewed extension attempt remains the more realistic path. The 4,500 area, followed by the 4,580 50% retracement, should be tougher supply.

Technicals are one thing. Why else might the market be moving away from liquidation dominance?

Seasonality is one. Silver’s path this year has actually aligned rather well with its historical profile: peaking around the January seasonal high, then correcting through the tougher spring period into June. The late-summer backdrop is more constructive, if still choppy. October is the next stronger point in the calendar, before the more consistently favourable December-to-February window.

Figure 2: Silver seasonals over the last 20 years

Source: Datastream, CE

The broader backdrop is also becoming more interesting, now that the manic version of the metals’ narrative has been stopped out of the market. Central-bank demand remains. Recent joint intervention is complicated but - as a reaction to global monetary-currency strains, as an attempt to see off bond pressure, and with initiates to provide FX repo backstops to avoid MoF forced Treasury selling to access dollars - this is leaning more into some of the old metals’ supportive narrative, without indulging in the cartoon version of it. Bonds have also been expressing some disquiet over the direction, or at least motivation and clarity, of US monetary policy coming out of the last presser. Risk asset meanwhile are also attempting to melt up once more on further can kicks - be that on policy, Iran, or on wider valuation discomforts.  That’s a kind of combined melting pot that has, stereotypically, got metals interested. Against all that, dollar positioning reached extreme overall longs in the spec market.

Finally, the approaching US election is not simply a source of routine campaign volatility: the possibility of institutional and constitutional ‘friction’ around the process, adds a more awkward tail risk and possible incentive for alternative positioning.

None of this amounts to an all-clear. Precious-metals rallies may yet run into another wave of pressure in the longer outlook. But when, potentially, short-term technicals, seasonal timing, positioning and the broader market tone and event outlook begin to point in the same direction, a case emerges for a period of retracement strength.

The immediate test is whether the developing bases hold and begin to produce some higher low and highs and MA support structure If they do, a burned market may start nibbling again.