Silver Price Forecast: Price Action Firming for Soft, White Metal - Levels for XAG/USD
Silver Price Outlook:
- Silver prices have eased off their April highs, setting up what could be perhaps the first test of nascent bullish momentum.
- Even though silver prices have climbed out of the downtrend from the February and March highs, a cluster of Fibonacci retracement has proved resistance during the rally.
- Recent changes in sentiment suggest that silver prices have a mixed bias in the near-term.
Silver Prices Back Off as Yields Edge Higher
With inflation data from around the globe in focus over the course of the week, global bond yields have seen a bit of topside gains amid focus on the thematic influence that ‘price pressures are rising.’ Even though this has curated an environment for a weaker US Dollar as well as marginally softer US equities, precious metals, including silver prices, have struggled to continue with their respective April rallies.
Even though silver prices have climbed out of the downtrend from the February and March highs, a cluster of Fibonacci retracement has proved resistance during the rally. Now firmly in the latter third of the month, silver prices have eased off their April highs, setting up what could be perhaps the first test of nascent bullish momentum.
SILVER PRICE TECHNICAL ANALYSIS: DAILY CHART (March 2020 to April 2021) (CHART 1)
In the previous silver price forecast update, it was noted that “silver prices appear to be attempting to climb out of the downtrend from the February and March highs, which could give a near-term technical reason to throw doubt on the viability of the double top.” Insofar as the downtrend has been broken, focus has shifted from a bearish double top to more stability within the sideways range in place since last summer, which in context of longer-term timeframes, suggests that a multi-month bull flag has been forming.
That said, with silver prices hitting a cluster of Fibonacci retracements, near-term resistance has been found. Both the 23.6% retracement of the 2020 low/2021 high range and the 38.2% retracement of the 2011 high/2020 low range come into play around 25.7716/26.2233, which previously capped silver prices during the mid-March rebound attempt.
Momentum has continued to develop in a more bullish manner as April has progressed. Silver prices are above their daily 5-, 8-, 13-, and 21-EMA envelope, which is in bullish sequential order, and more importantly, the daily 5-EMA proved itself as support during the pullback – a sign that near-term bullish momentum is strong. Daily MACD is trending higher and is breaking above its signal line, while daily Slow Stochastics have already settled into overbought territory.
SILVER PRICE TECHNICAL ANALYSIS: WEEKLY CHART (November 2020 to April 2021) (CHART 2)
Regaining the uptrend from the March and December 2020 lows would bring silver prices back into its multi-month ascending triangle, putting it back on path for return to its yearly high at 30.1365. This hasn’t been accomplished yet, but would become a higher probability outcome should silver prices retake the 38.2% retracement of the 2011 high/2020 low range at 26.2233.
Silver Prices Tracking Silver Volatility More Closely
Both gold and silver are precious metals that typically enjoy a safe haven appeal during times of uncertainty in financial markets. 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 silver’s safe haven appeal.
VXSLV (SILVER VOLATILITY) TECHNICAL ANALYSIS: DAILY PRICE CHART (April 2020 to April 2021) (CHART 3)
Silver volatility (as measured by the Cboe’s gold volatility ETF, VXSLV, which tracks the 1-month implied volatility of silver as derived from the SLV option chain) was trading at 31.77 at the time this report was written (notably down from the monthly high of 137.95, which is now the new all-time intraday high). The 5-day correlation between VXSLV and silver prices is +0.27 and the 20-day correlation is -0.23. One week ago, on March 30, the 5-day correlation was +0.05 and the 20-day correlation was +0.83.
IG Client Sentiment Index: Silver Price Forecast (April 20, 2021) (Chart 4)
Silver: Retail trader data shows 92.55% of traders are net-long with the ratio of traders long to short at 12.42 to 1. The number of traders net-long is unchanged than yesterday and 4.40% lower from last week, while the number of traders net-short is unchanged than yesterday and 5.19% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests 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 Silver trading bias.
--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
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