Silver Price Outlook:
- Silver costs have abruptly reversed, turning decrease at a cluster of necessary Fibonacci retracements that had been previously help.
- A rebound in US actual yields and a stronger US Dollar are proving problematic within the near-term for silver costs.
- However, recent modifications in sentiment recommend that silver costs have a bullish bias.
Real Yields, US Dollar Rebound Weigh
After surging on the finish of July and early-August, the silver worth rally has hit a significant snag. US actual yields have moved increased in a non-insignificant method over the previous two weeks (US 10-year actual yield up from +0.09% on August 1 to +0.35% at the moment), whereas a stronger US Dollar is performing as a headwind as properly. Against a backdrop the place world recession issues proceed to mount whereas main central banks proceed to lift charges aggressively, silver costs have seen obstacles accumulate quite rapidly by way of the flip of the month.
Silver Prices and Volatility Relationship Still Weak
Both gold and silver are valuable metals that sometimes take pleasure in a secure haven enchantment throughout occasions of uncertainty in monetary markets. While different asset courses don’t like elevated volatility (signaling larger uncertainty round money flows, dividends, coupon funds, and so on.), valuable metals have a tendency to learn from intervals of upper volatility as uncertainty will increase silver’s secure haven enchantment. A lackluster volatility setting in US equities isn’t doing a lot for silver costs within the near-term.
VIX (US S&P 500 VOLATILITY) versus Silver Price TECHNICAL ANALYSIS: DAILY PRICE CHART (August 2021 to August 2022) (CHART 1)
US stock market volatility (as measured by the US S&P 500 volatility index, VIX, which tracks the stock market’s expectation of volatility based mostly on S&P 500 index choices) was buying and selling at 20.53 on the time this report was written. The 5-day correlation between the VIX and silver costs is -0.21 and the 20-day correlation is -0.23. One week in the past, on August 10, the 5-day correlation was -0.07 and the 20-day correlation was -0.52.
SILVER PRICE TECHNICAL ANALYSIS: DAILY CHART (August 2021 to August 2022) (CHART 2)
After transferring increased following the July Fed assembly, the silver worth rally stalled out at a cluster of necessary Fibonacci ranges: the 23.6% retracement of the 2011 excessive/2020 low vary; and the 50% retracement of the 2020 low/2021 excessive vary. Silver costs have dropped under their every day 5-, 8-, 13-, and 21-EMA envelope, which is in neither bearish nor bullish sequential order. But momentum is fading rapidly, with every day MACD issuing a bearish crossover simply above its sign line, whereas every day Slow Stochastics have plummeted out of overbought territory. A drop under the August low at 19.5519 would open the door for a return to the yearly lows at 18.1423.
SILVER PRICE TECHNICAL ANALYSIS: WEEKLY CHART (November 2010 to August 2022) (CHART 3)
Despite the current rebound, there’s an argument to be made that the longer-term outlook stays bearish. Prior to the late-July rally, silver costs broke the 61.8% Fibonacci retracement of the 2020 low/2021 excessive vary at 18.7064, suggesting that the bull run in 2020 and 2021 ended. Silver costs are nonetheless under their weekly 4-, 8-, and 13-EMAs, and the EMA envelope is aligned in bearish sequential order. Weekly MACD is on the verge of issuing a bearish crossover whereas under its sign line, and weekly Slow Stochastics have did not return above their median line. It could be the case that the trail of least resistance is decrease, notably if US actual yields stay elevated and the US Dollar rebound gathers tempo.
IG CLIENT SENTIMENT INDEX: SILVER PRICE FORECAST (August 17, 2022) (CHART 4)
Silver: Retail dealer information exhibits 88.43% of merchants are net-long with the ratio of merchants lengthy to brief at 7.64 to 1. The variety of merchants net-long is unchanged than yesterday and 1.55% decrease from final week, whereas the variety of merchants net-short is 8.23% increased than yesterday and 32.98% increased from final week.
We sometimes take a contrarian view to crowd sentiment, and the very fact merchants are net-long suggests Silver costs might proceed to fall.
Yet merchants are much less net-long than yesterday and in contrast with final week. Recent modifications in sentiment warn that the present Silver worth pattern might quickly reverse increased regardless of the very fact merchants stay net-long.
— Written by Christopher Vecchio, CFA, Senior Strategist