Silver Prices May Reach $14.64, Discrepancy To Gold Prices

2016-01-11 13:00:00

Alejandro Zambrano, Market Analyst

Talking Points

Silver may reach $14.64 if it catches up with the price of gold.
Longer-term technical outlook is bearish below 14.40

Silver prices remain low and trendless despite gold prices soaring on safe haven demand.

With a strong link existing between the two metals, the rise in gold prices suggests that silver should be trading at $14.64 (currently at $13.97). One potentially valid reason for the current discrepancy may be that 50% of the demand for silver is for industrial use, while for gold, the figure lies only at 10% according to Bloomberg news. This means that probably most of the safe haven flows go to gold instead of silver. In either case a simple linear regression, covering data from the last six months, suggests that silver prices should be trading higher. The alternative being that gold is out of line.

The technical analysis suggests silver prices are trading sideways between the December 30 low of $13.76 and the December 28 high of $14.40. Traders expecting the current stock market turmoil to continue or for the USD to soften, are probably buying at current levels with the aim of seeing silver prices catching up with gold and ultimately reaching $14.64. Stop losses for these traders are either below the December 30 low of $13.76 or the December 14 low of $13.61.

Long-term traders who are expecting the Dollar to remain strong (as the Fed hikes rates) and for stock markets to stabilise, are probably already short near $14.25 with stops above $14.40 (as outlined in our outlooks since December). The same traders may also opt to short on a break to the December 14 low of $13.61, as this is yet another technical sell-signal.

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Silver (FXCM: XAG/USD)