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Silver Price Forecast: ETF Holdings Slip as XAGUSD Price Fades

Silver Price Forecast: ETF Holdings Slip as XAGUSD Price Fades

Peter Hanks, Strategist

Silver Price Forecast:

  • XAGUSD slipped roughly -3.5% on Wednesday as modest risk appetite returned to markets
  • Since the metal’s recent price peak on September 4, the total ETF holdings of silver have fallen by 18.3 million troy ounces
  • Gold prices have fallen similarly, but the metal has not witnessed the same decline in ETF ownership

Silver Price Forecast: ETF Holdings Slip as XAGUSD Price Fades

Since silver’s recent price peak on September 4, the total known ETF holdings of the metal have fallen by roughly 18.3 million troy ounces. As a percentage of total holdings, the decline in ownership is nearly 3% compared to the corresponding -8% decline in silver’s price. As I have highlighted previously, robust demand via ETFs for gold and silver had helped to buoy the price of both precious metals. In recent months, modest drawbacks in price were met with relatively steadfast demand from exchange traded funds.

Silver Holdings Slip Alongside Price

Silver Price and ETF Holdings Chart

Data source: Bloomberg

Now, however, it seems as though some of the underlying demand for silver is waning as investors look to cast the precious metal aside. Perhaps due to shifting fundamental conditions or the nearly parabolic price climb in July and August, a continued decline in ETF holdings of silver could look to exacerbate the metal’s price decline. To that end, profit-taking due to the steep ascent in price could be a likely selling catalyst if the holdings of gold remain consistent.

Gold Holdings Remain Robust

Gold Price and ETF Holdings

Data source: Bloomberg

Acting as a cheap alternative to gold, silver enjoys many of the same fundamental tailwinds as its more expensive counterpart. More specifically, gold and silver typically enjoy a boost when investors are looking to hedge against inflation or to safely park capital. Therefore, the relatively consistent holdings of gold – despite similar declines in price – could suggest the fundamental concerns that sparked the initial rotation into the precious metals remain.

Learn the Tips and Tricks of Trading the Gold - Silver Ratio

With that in mind, the recent decline in silver prices could look to continue as investors reassess the shorter-term outlook and take profit, but without a simultaneous decline in gold holdings, the longer-term picture may remain constructive for XAGUSD.

Silver Price Chart (XAGUSD): Daily Time Frame (October 2015 – September 2019)

SIlver Daily Price Chart

Created with TradingView

With that in mind, traders should look to technical levels for guidance as the longer- and shorter-term themes jockey for control over price. In the event of continued pressure, support could materialize around $17.5 – the midpoint of two Fibonacci sequences. Serious selling could see the metal look to subsequent support around $16.60 where two more Fibonacci levels reside.

How to Trade Silver: Top Silver Trading Strategies

On the other hand, barriers to bullish price swings may reside around $18.30 and the recent price-peak in the $19.50 area. For a deeper look at the ETF holdings of both silver and gold, follow @PeterHanksFX on Twitter.

--Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

Read more:Dow Jones, DAX 30, FTSE 100, S&P 500 Forecasts for the Week

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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