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What’s inside:

  • Market positioning remains unfavorable for higher prices, but historical extreme moderates
  • Continued weakness in silver prices likely to persist
  • Support around 16 barely holding, looking to January trend-line next

On Thursday, we went over our logic as to why we believe the price of silver will continue to drop, or at the least remain well-offered on rallies; it all stems from an unwinding of the extreme positioning in the futures market. On Friday, the latest COT report showed the largest decline in net speculative longs since the multi-year low in silver prices in December. COT data is based on positioning changes for a one-week period ending on the Tuesday prior to the report released each Friday. With that said, with silver experiencing further weakness since last Tuesday a further unwinding should be seen again in this week’s report. Positioning still has room to correct before we will consider it a neutral, and much further to go before it will be considered a notable positive. (For more details regarding positioning see last week’s piece/graph.)

Looking at the chart: The area around 16 has been viewed as an important support level. Continued trade below, which is looking like the case as buyers are currently showing limited interest, will likely carry silver towards the trend-line (~15.75) running off the January swing low. A move below this trend-line to the 14.60/80 vicinity looks quite possible given the before discussed positioning extreme. Bounces within the descending parallel are likely to be short-lived and viewed as opportunities to sell. An ideal spot to look for a short at this time is at the upper parallel of this channel. If looking to play from the long-side for a counter-trend trade, a strong rejection at support needs to occur before increasing the likelihood of seeing a meaningful bounce. But, again, at this time still working from the short-side until we see a material change in technical posturing and market positioning.

Silver Price Daily

Silver Prices Testing Support, Trend Lower Remains Strong

Looking for longer-term forecasts? Check out our analyst views here.

---Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter @PaulRobinsonFX, or email him directly at probinson@fxcm.com.