We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
EUR/USD
Bearish
GBP/USD
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
USD/JPY
Mixed
Gold
Mixed
Oil - US Crude
Mixed
Bitcoin
Mixed
More View more
Notice

DailyFX PLUS Content Now Available Freely to all DailyFX Users

Real Time News
  • What is the @ecb (European Central Bank)? What are the key mandates of the bank and how can it affect the #forex market? Find out: https://t.co/romV4hPQJv https://t.co/4nlCaUNhpD
  • Your psychology has a significant impact on the decisions you make, particularly if you are new to trading. How can you avoid your emotions from turning you into a #FOMO trader? Find out: https://t.co/FC7CHpk9vA #FOMOintrading https://t.co/WSDr3JkpAG
  • $AUDUSD: Short-term support could lead-in to a quick bounce up to resistance as taken from another prior support level, plotted around the .6830 level on the chart. Get your market update from @JStanleyFX here: https://t.co/tUoe1Roo5t https://t.co/omaDxGNhZU
  • Central bank independence has several advantages. Find out what they are in detail with @MartinSEssex here: https://t.co/wVFXbbTxf1 https://t.co/cQQmuH8biQ
  • The US Dollar remains in consolidation mode against the Philippine Peso and Indian Rupee. Will the Singapore Dollar weaken as $USDSGD rising support holds ahead? Find out from @ddubrovskyFX here: https://t.co/HZ8Loqj3Ey https://t.co/6PCFkdj3ka
  • Follow @DailyFXedu for your regular #webinar updates with @DailyFX analysts and catch up on the webinars you missed. https://t.co/Da10QUg9r1
  • Greed has proven to be a hindrance more than assistance for traders. How does greed lead to #FOMOintrading? Find out from @RichardSnowFX here: https://t.co/aT8TZjlFqP https://t.co/Le8Qx6OOwV
  • $GBPUSD at the moment break-even straddles = 152pips meaning that for option traders to realize gains, the spot price must see a move greater than 152pips. Get your market update from @JMcQueenFX here: https://t.co/odj2lLRrGf https://t.co/RXCBwHGluG
  • $EURGBP has fallen over 6% since August and is now rapidly approaching a critical support level not reached since May. Will a break below accelerate the aggressive selloff? Find out from @ZabelinDimitri here: https://t.co/CBM8Fg7vM0 https://t.co/0yDnEpzQqR
  • The #Euro is struggling for direction against the US Dollar but the near-term downtrend guiding it lower since late June remains firmly intact. Where is $EURUSD heading? Get your technical analysis from @IlyaSpivak here: https://t.co/us6AINmuoe https://t.co/J4hQtyprYf
Silver Prices Fall Back to Key Trend Support - Next Levels for XAG/USD

Silver Prices Fall Back to Key Trend Support - Next Levels for XAG/USD

2019-09-11 17:15:00
Christopher Vecchio, CFA, Sr. Currency Strategist
Share:

Silver Prices Overview

  • With the US-China trade war back in détente, US Treasury yields have jumped sharply, reducing the safe haven appeal of precious metals. US Treasury yields have increased by their fastest rate since January 2019.
  • If a short-term pullback takes shape, traders may want to consider the opportunity to engage the longer-term bullish bottoming effort in silver prices.
  • Recent changes in sentimentgive us a mixed spot silver trading bias.

Looking for longer-term forecasts on Gold and Silver prices? Check out the DailyFX Trading Guides.

The recovery in risk appetite continues. With China making more entreaties to de-escalate the trade war with the United States, recent days have seen investors shed lower yielding and safe haven assets, like US Treasuries and the Japanese Yen, while bidding up higher yielding and high beta assets, like US equities and the Australian Dollar. Some of the biggest movers in financial markets, however, remain precious metals like gold and silver.

US TREASURY YIELDS TAKE SHINE OFF GOLD AND SILVER

Now that the US-China trade war has settled into a short-term truce, investors are no longer expecting the G10 currencies’ central banks to deliver aggressive easing measures in the immediate future. The second order effect has been the sharpest rise in short- (1m to 2y) and medium-term (3y to 7y) US Treasury yields since January 2019 over the past week. Rising yields tend to be bad for precious metals.

WHY DO ‘REAL YIELDS’ MATTER TO SILVER PRICES?

The rise in US Treasury yields around the latest US-China trade war developments undermines one of the most important fundamental underpinnings of precious metals’ rallies: environments that produce falling real yields tend to be the most bullish. On the other hand, environments that produce rising real yields tend to be the most bearish for precious metals.

Real yields are inflation-adjusted yields: in this case, the US Treasury 10-year yield minus the headline inflation rate. Why does this matter? Investing is all about asset allocation and risk-adjusted returns. On the asset allocation side, it’s about achieving required returns given the investor’s wants and needs.

If inflation expectations are rapidly increasing, you would expect to see fixed income underperform: the returns are fixed, after all. Why would you want to have a fixed return when prices are increasing? On a real basis, your returns would be lower than otherwise intended.

Rising US real yields means that the spread between Treasury yields and inflation rates isincreasing. If precious metals yield nothing (no dividends, coupons, or cash flows), they would be ill-suited to hold when US real yields rose.

Silver Prices Follow Silver Volatility Lower

While other asset classes don’t like increased volatility (signaling greater uncertainty around cash flows, dividends, coupon payments, etc.), precious metals tend to benefit from periods of higher volatility as uncertainty increases gold’s and silver’s safe haven appeal.

VXSLV (SILVER VOLATILITY) TECHNICAL ANALYSIS: DAILY PRICE CHART (APRIL 2016 TO SEPTEMBER 2019) (CHART 1)

silver volatility, silver volatility technical analysis, silver volatility chart, silver volatility forecast, silver price volatility, silver price today

Silver volatility (as measured by the Cboe’s gold volatility ETF, VXSLV, which tracks the 1-month implied volatility of gold as derived from the SLV option chain) is running higher around the latest US-China trade war developments. VXSLV is currently trading at 29.13, down from 34.56 last week, its highest level since January 3, 2017.

The 5-day correlation between VXSLV and silver prices is 0.46; and the 20-day correlation is 0.87 (one month ago, on August 12, the 5-day correlation was 0.91 and the 20-day correlation was 0.64). It still holds that silver prices will remain weak so long as silver volatility continues to trend lower, although given the weakening of the 5-day correlation, it also holds that silver prices may not fall as far as a drop in silver volatility may otherwise imply.

SILVER PRICE TECHNICAL ANALYSIS: WEEKLY CHART (AUGUST 2013 TO SEPTEMBER 2019) (CHART 2)

silver price, silver technical analysis, silver chart, silver price forecast, silver price chart

As noted in our most recent silver price technical forecast update, “traders should be cautioned that the weekly shooting star/inverse hammer warns of potential for a bearish reversal in the near-term.” While the move by silver prices above the (1) April 2017, September 2017, and June 2018 swing highs, and the (2) 2013 and 2016 swing highs has been maintained in recent days, there remains scope for pullback. Trading is a function of both price and time; given the scale of the recent rally, silver prices may be due for a period of sideways consolidation if the longer-term bottoming effort is to remain valid.

SILVER PRICE TECHNICAL ANALYSIS: DAILY CHART (SEPTEMBER 2018 TO SEPTEMBER 2019) (CHART 3)

silver price, silver technical analysis, silver chart, silver price forecast, silver price chart

Per the most recent silver price technical forecast update, it was noted that “A break above near-term doji resistance at 17.489 would signal a bullish continuation effort for silver prices. The measured move now calls for silver prices to trade into 18.468. Having achieved this breakout target, silver prices may be due for a period of profit taking – traders digesting the recent move, if you will…the bearish outside engulfing bar on the daily chart further reinforces the idea of a potential for a short-term pullback.”

Silver prices have dropped fairly quickly, returning to the daily 21-EMA for the first time since July 31. Daily MACD continues to trend lower, albeit in bearish territory, while Slow Stochastics has slumped below its neutral line. Silver prices have not closed below the daily 21-EMA since July 11. If the silver price rally since the end of May is going to be maintain, the daily 21-EMA will hold up as key support.

IG Client Sentiment Index: Spot Silver Price Forecast (SEPTEMBER 11, 2019) (Chart 4)

igcs, ig client sentiment index, igcs silver, silver price chart, silver price forecast, silver price technical analysis

Spot silver: Retail trader data shows 82.3% of traders are net-long with the ratio of traders long to short at 4.65 to 1. The number of traders net-long is 0.3% higher than yesterday and 8.4% higher from last week, while the number of traders net-short is 3.9% higher than yesterday and 29.1% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests spot silver prices may continue to fall. Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed spot silver trading bias.

FX TRADING RESOURCES

Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.

--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail at cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

View our long-term forecasts with the DailyFX Trading Guides

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

DISCLOSURES

News & Analysis at your fingertips.