The strong dollar continues to hurt precious metals, and silver fell this week to a 14-month low while gold stays close to its major yearly lows. The metals rebounded yesterday, but the trend is well-established and could go further down for the time being.

That said, there is potential for buying opportunities still, which would become much more attractive at levels a little lower than current prices. The setup on silver is looking particularly attractive, and that’s what we will look at below.

Several important factors point to the $18-$20 area as the key support in silver. 

Here’s a brief summary of them:

• Former resistance from the 2019 and 2020 highs is in this 18-20 area. As we know, broken resistance turns into support when tested from the other side.
• The 200-weekly moving average is standing around the $19 level.
• The 50, 100, and 200 monthly moving averages are all clustered between $18 and $19.
• The 61.8% Fib retracement from the March 2020 low to the January 2021 high is at $18.50
• Finally, a butterfly pattern has its ending point in this same area (see chart). It is this harmonic butterfly pattern that we’ll use for our trade plan below.

All of the above suggests that $18-$20 is a very strong support area, which means it’s very likely that the price will react if it reaches this area. So, we want to look for buying opportunities if the ongoing downtrend decline goes further lower. 

Moreover, the bullish harmonic butterfly could be triggered once the price is at the 18.50 - 19.50 area. This is the harmonic support area of the butterfly pattern, and we know that harmonic patterns tend to work amazingly well, or - when they fail - they fail miserably. But we also know statistically that they are successful more often than not.

Entries: 

• Watch for the price to reach the 18.50 - 19.50 harmonic support area;
• Then look to enter long once a bullish price reaction is evident (you can look for that on lower timeframes, such as the daily in this case);
• If the price gets as low as 18.50, then a long entry without a bullish sign would be worth taking too, since the stop would be very tight (see below). 

Stop: 

• Below the harmonic support of the pattern ($18.50). 
• A tighter stop should be enough. Harmonic patterns usually reverse within the designated zone if they are going to reverse. Or if they fail, then the price continues to fall much further.

Targets:

• The basic idea with the harmonic patterns is that once the price hits their support area, it is then likely to rebound at least to the 38.2% Fibonacci retracement of the CD leg.
• The minimum targets of the butterfly pattern, in this case, would therefore be the following:
• 1st target - 22.30-22.95 zone (38.2% Fib of CD leg)
• 2nd target - 24.80-25.15 zone (61.8% FIb of CD leg)

Finally, let’s have a word about the fundamentals. Silver is currently falling because the Fed turned hawkish and will soon begin tapering the massive amounts of QE that they’ve been doing since the March 2020 Covid outbreak. With the momentum now on the side of USD bulls, this downtrend in precious metals probably has further room to run.

But, the long-term outlook for silver remains bullish, particularly from its industrial side. Namely, silver is a key component used to build solar panels, the demand for which is expected to keep growing steadily driven by policies to fight climate change globally. As these “green” products become less costly and more widely available over time, more people will be buying them, keeping demand strong.

So, given these bullish fundamentals underpinning silver, it’s hard to imagine the price dropping much below $20 and staying there. Even from a long-term perspective, the above discussed $18-$20 support area could prove as a great buying opportunity.

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