Silver Prices Remain Bearish Below $14.62

2015-12-22 14:24:00

Alejandro Zambrano, Market Analyst

Talking Points

Silver remains out of favour and capped by the December high of $14.62.
Silver to S&P 500 ratio points towards further Silver price losses
Data on tap in today’s session is U.S. house price index (0.5% MoM expected), Existing home sales (-0.2% MoM expected), and Richmond Fed Mfg. Index (-1 expected).

Silver remains out of favour and capped by the December high of $14.62. A break to this level may trigger a push towards to $15 and $15.50. This could be scalped on a break to $14.62, but the base case is for the medium trend to remain bearish and capped by $14.62. As long as $14.62 is capping price I am expecting a decline to $13.59 and $13.17.

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The reason for holding this view is the long-term bullish trend of the US Dollar and the preference of investors to hold equities over the precious metal. This can be seen in the Silver to S&P 500 ratio (see below).

At the lows of 2011 one contract of the S&P 500 was worth 25.59Troy Ounce of silver. While today an investor would need 141 Troy Ounces to buy the same S&P 500 contract. This highlights that the S&P 500 has been gaining in value while silver prices have dropped. It also points out that the market is not afraid of inflation or geopolitical worries, which are two reasons for traders to buy silver. In regards to the former, the current decline of Crude oil prices will probably ensure that the world economy experiences low inflation in the next 2 years. Geopolitical risks have declined as the western super-powers are now working closer with the Russians to combat the IS.

Data on tap in today’s session is U.S. house price index (0.5% MoM expected), Existing home sales (-0.2% MoM expected), and Richmond Fed Manu. Index (-1 expected). I don’t expect these indicator to change the overall trend of Silver prices as none are key for the Federal Reserve. For a complete list of economic indicators please see our economic calendar.

Silver To S&P 500 Ratio