Silver Price Forecast: Towards August Low?
Silver Price Outlook:
- As the yields of the US dollar and the US Treasury rise higher, silver prices have plunged.
- The latest batch of US economic data suggests the economy is overcoming concerns about delta variants, increasing the chances of a Fed cut announcement soon.
- Recent changes in sentimentsuggest that silver prices have a mixed short-term bias.
No silver bullet
Concerns about the delta variant remain on the sidelines of financial markets, but recent positive surprises in US economic data have brought attention back to the idea that the Federal Reserve may soon be approaching a cut announcement.
Rising US Treasury yields (along with US real yields) pushed the US dollar up (via the DXY index), reducing investor appetite for precious metals. Silver prices are now approaching their worst performance since June 17, which preceded a month-long sideways move before another drop. These are worrying signs for the prices of silver.
Silver price and atypical silver volatility relationship
Both gold and silver are precious metals that generally enjoy a safe haven appeal during uncertain financial markets. While other asset classes dislike increased volatility (signaling greater uncertainty regarding cash flow, dividends, coupon payments, etc.), precious metals tend to benefit from periods of weakness. higher volatility as uncertainty increases money call refuge. The fact that volatility measures have increased alongside the weakness in silver prices is an important “red flag”.
VXSLV TECHNICAL ANALYSIS (SILVER VOLATILITY): DAILY PRICE TABLE (September 2020 to September 2021) (CHART 1)
Money volatility (as measured by the ETF on the volatility of Cboe gold, VXSLV, which tracks the 1-month implied volatility of money as a derivative of SLV option string) was trading at 29.96 at the time of writing. The 5-day correlation between VXSLV and money the prices are -0.97 and the 20-day correlation is -0.43. A week ago, on September 9, the 5-day correlation was +0.86 and the 20-day correlation was -0.40.
TECHNICAL ANALYSIS OF THE PRICE OF MONEY: DAILY CHART (February 2020 to September 2021) (CHART 2)
In early September, silver prices were attempting to cross the downtrend line from their summer highs, but a false bullish breakout materialized. The latest drop in silver prices caused the Fibonacci retracement to return to 38.2% of the 2020/2021 high range at 23.0713, creating the potential for its lowest close of the year.
Silver prices fall below their daily envelope of 5, 8, 13 and 21 EMA, which quickly lines up in a bearish sequential order. The Daily MACD tends to move lower below its signal line, while the Daily Slow Stochastic collapses into oversold territory. A return to the August low of 22.1020 looks likely in the near term.
TECHNICAL ANALYSIS OF THE PRICE OF MONEY: WEEKLY CHART (from November 2010 to September 2021) (CHART 3)
In early August, it was noted that “failure to return to the ascending triangle this week would increase the likelihood of a deeper pullback, potentially up to the 23.6% Fibonacci retracement of the 2011 high range / 2020 at 20.6500 “. A loss from the August low at 22.1020 would increase the odds of a return to the 23.6% Fibonacci retracement.
IG CUSTOMER FEELING INDEX: MONEY PRICE FORECAST (September 16, 2021) (CHART 4)
Silver: Retail trader data shows that 91.38% of traders are net long with a ratio of long to short traders at 10.60 to 1. The number of net long traders is 1.17% lower than the number of long traders. ‘yesterday and 10.22% lower than last week, the number of net-short traders is 6.69% lower than yesterday and 10.40% higher than last week .
We generally take a contrarian view of crowd sentiment, and the fact that traders are net long suggests that silver prices may continue to fall.
The positioning is more net-long than yesterday but less net-long than last week. The combination of current sentiment and recent changes gives us another mixed bias for silver trading.
— Written by Christopher Vecchio, CFA, Senior Strategist