Silver Price Outlook:
- Silver prices continue to hold within their multi-month ascending triangle, constrained by the ongoing consolidation.
- Strength in the US Dollar poses a problem for precious metals, as does the prospect of the Federal Reserve withdrawing stimulus.
- Recent changes in sentiment suggest that silver prices have a mixed bias in the near-term.
Coiling Like a Spring
At the start of June, silver prices closed out at their highest weekly level since March 2013. In the interim four weeks, not much else has happened. With US Dollar strength emerging in mid-June following the Federal Reserve policy meeting, silver prices have been hobbled, unable to capitalize on its otherwise bullish technical structure. No longer immediately targeting a return to the yearly high at 30.1365, it appears that silver prices are destined to stay rangebound for the foreseeable future.
Silver Price and Silver Volatility Out of Whack
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 (July 2020 to July 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 29.56 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 -0.31 and the 20-day correlation is +0.55. One week ago, on June 29, the 5-day correlation was -0.32 and the 20-day correlation was +0.64.
SILVER PRICE TECHNICAL ANALYSIS: DAILY CHART (March 2020 to July 2021) (CHART 2)
Focus is once more trained on 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 been trading choppily near consolidation support in recent weeks, but no discernible break has been attempted.
But silver prices are attempting to stage a recovery, in what ultimately may be the price action that maintains the ascending triangle consolidation. Silver prices are now above their daily 5-, 8-, 13-, and 21-EMA envelope, which is shifting back to bullish sequential order. Daily MACD is trending higher albeit below its signal line, and daily Slow Stochastics have run higher through their median line.
SILVER PRICE TECHNICAL ANALYSIS: WEEKLY CHART (November 2010 to July 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.”
While this progress has been impeded in recent weeks, its important to remember that trading is a function of price and time. Insofar as the ascending triangle consolidation reaches its vertex by end of 4Q’21 or early-1Q’22, silver prices may find themselves twirling towards freedom – in The Simpsons sense, aimless meandering and bantering all for naught – for a few months longer before resolution is achieved.
IG CLIENT SENTIMENT INDEX: SILVER PRICE FORECAST (July 6, 2021) (CHART 4)
Silver: Retail trader data shows 93.23% of traders are net-long with the ratio of traders long to short at 13.76 to 1. The number of traders net-long is 3.46% higher than yesterday and 2.38% higher from last week, while the number of traders net-short is 11.57% lower than yesterday and 7.91% higher 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 more net-long than yesterday but less 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
