Silver Price Outlook:
- Silver prices are benefiting from strong economic data and record low real interest rates.
- Technical momentum remains bullish, with silver prices having survived a retest of former neckline resistance (now support) of their inverse head and shoulders pattern.
- Recent changes in sentiment suggest that silver prices have a mixed bias in the near-term.
First Test, Passed
Silver prices are benefiting from shifting short-term fundamental tailwinds that are producing a trifecta of favorable conditions: record low real interest rates; rising realized and expected inflation measures; and strong economic growth conditions (particularly in the US). Silver’s resiliency in November, despite bearish seasonality tendencies for precious metals, as well as in the face of robust US Dollar strength, bodes well for price action over the coming days and weeks.
Silver Prices and Silver Volatility Relationship Normalizing
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 (November 2020 to November 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 30.67 at the time this report was written. The 5-day correlation between VXSLV and silver prices is -0.42 and the 20-day correlation is +0.38. One week ago, on November 10, the 5-day correlation was -0.63 and the 20-day correlation was -0.11. Additional volatility in the near-term should be beneficial for a further increase in silver prices.
SILVER PRICE TECHNICAL ANALYSIS: DAILY CHART (November 2020 to November 2021) (CHART 2)
Like their golden counterpart, silver prices may have recently just broken above neckline support in an inverse head and shoulders pattern. The bottoming formation recently weathered a retest of former neckline resistance (now support), a sign of back and fill price action that suggests the next leg up is beginning. However, yesterday’s daily candlestick was an outside engulfing bar, meaning traders should be cautioned that a break back below the neckline (24.8000) could imperil the bottom effort.
With silver prices rebounding at their daily 8-EMA today, price action retains its bullish momentum structure. Silver prices are back above their daily 5-, 8-, 13-, and 21-EMA envelope, which is in bullish sequential order. Daily MACD continues to trend higher above its signal line, while daily Slow Stochastics are holding in overbought territory. In the short-term, further advances towards the August high at 26.0055 are anticipated.
SILVER PRICE TECHNICAL ANALYSIS: WEEKLY CHART (March 2011 to November 2021) (CHART 3)
Rather than an ascending triangle, it may be the case that silver prices have been consolidating in a sideways range – a bull flag of sorts – over the past year-plus. The weekly timeframe shows silver prices rebounding from range support at the end of September. A return to and through the 38.2% Fibonacci retracement of the 2011 high/2020 low range at 26.2233 would increase the odds of a move back towards range highs above 29.8000.
IG CLIENT SENTIMENT INDEX: SILVER PRICE FORECAST (November 17, 2021) (CHART 4)
Silver: Retail trader data shows 90.37% of traders are net-long with the ratio of traders long to short at 9.39 to 1. The number of traders net-long is 0.16% higher than yesterday and 8.29% higher from last week, while the number of traders net-short is 8.43% higher than yesterday and 6.72% 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 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 Strategist
