Silver Price Forecast: After Highest Weekly Close of 2021, Highs in Sight - Levels for XAG/USD
Silver Price Outlook:
- Silver prices enter June having just closed out at their highest weekly close of the year.Silver prices are holding with their multi-month ascending triangle, remaining on track for a return to their yearly high at 30.1365
- The continuing erosion in US real yields has undercut the US Dollar, boosting precious metals’ appeal.
- Recent changes in sentimentsuggest that silver prices have a mixed bias in the near-term.
Silver Quietly Notching Important Highs
On Friday afternoon, as most trading desks emptied for the long holiday weekend, my colleague Rich Dvorak sent me a message over our internal chat system: “how is no one talking about silver closing out at its highest weekly level since March 2013?”
Indeed, with much attention on gold prices breaching $1900/oz and crude oil prices breaking above a multi-decade downtrend dating back to all-time highs, silver prices have been quietly chugging away in the background, notching important highs with little pomp and circumstance. However, it’s worth noting that this environment has been more or less anticipated.
In the prior silver price forecast update, it was noted that “the inflation narrative is changing, but the changes may be good for precious metals…although May has typically been a rather bearish month for the precious metals complex, silver’s resiliency has been defined by a revitalized fundamental backdrop: US real yields are eroding alongside the US Dollar.”
All of this remains true, and it’s against this sturdy fundamental backdrop that silver prices enter June on strong footing, now targeting the 2021 highs established at the start of the year.
Silver Price and Silver Volatility Starting to Tango
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 (June 2020 to June 2021) (CHART 1)
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 34.92 at the time this report was written, still off from its May highs (which were two-month highs).. The 5-day correlation between VXSLV and silver prices is +0.24 and the 20-day correlation is -0.04. One week ago, on May 25, the 5-day correlation was +0.87 and the 20-day correlation was -0.54.
SILVER PRICE TECHNICAL ANALYSIS: DAILY CHART (March 2020 to June 2021) (CHART 2)
In the prior silver price forecast update, it was noted that “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. Silver prices have edged higher in this consolidation, which has taken on the shape resembling that of an ascending triangle.” This remains the case.
Recent days have seen bullish momentum quietly build, with silver prices extending further above their daily 5-, 8-, 13-, and 21-EMA envelope, which is in bullish sequential order. Daily MACD is trending higher while above its signal line, and daily Slow Stochastics have started to turn higher, nearing overbought territory. It still holds that “the slow, steady grind back to the yearly high near 30.000 seems plausible over the coming weeks.”
SILVER PRICE TECHNICAL ANALYSIS: WEEKLY CHART (November 2010 to June 2021) (CHART 3)
Nothing has changed, which means silver prices continue to progress within the confines of previous expectations. “Silver prices are holding with their multi-month ascending triangle, remaining on track for a return to their yearly high at 30.1365. If accomplished, this would also constitute a potential longer-term bullish breakout, more evidence that a significant bottom has been carved out; the 2011 highs would need to be brought into consideration thereafter.”
--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
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