Silver Price Outlook:
- Silver prices have stabilized over the past little weeks, but the worst may not be over yet.
- A symmetric triangle against the background of the previous lower move suggests that the next move will be lower for silver prices.
- Recent changes in sentiment suggest that silver prices have a short-term mixed bias.
Stability does not mean recovery
Silver prices have been trading sideways for more than a month, unable to make a meaningful recovery after setting a new 2022 low – and breaking their 2021 low – in May. The fact is that fundamental headwinds remain significant.
The continued rise in nominal US Treasury yields and falling US inflation expectations (as measured by breakevens and inflation forward swaps) boosted US real yields; historically, positive US real returns have been correlated with losses in silver (and gold as well). Moreover, amid growing recession concerns among developed economies, the role of silver’s industrial use is being undermined.
As a result, the weak fundamental silver price narrative underpins a still weak technical outlook, regardless of the relative stability that has occurred since mid-May.
Change in volatility bodes ill for silver prices
Both gold and silver are precious metals that generally enjoy safe-haven appeal during times of financial market uncertainty. While other asset classes dislike increased volatility (signalling greater uncertainty around cash flow, dividends, coupon payments, etc.), precious metals tend to benefit from periods of higher volatility as uncertainty increases. silver refuge call. The recent decline in US equity volatility suggests a more challenging environment for near-term silver prices.
VIX (US S&P 500 VOLATILITY) versus silver price
US stock market volatility (as measured by the US S&P 500 volatility index, VIXfollowing the expectation of stock market volatility based on S&P 500 index options) was trading at 30.11 at the time of writing. The 5-day correlation between the VIX and silver the prices are +0.10 and the 20-day correlation is -0.46. A week ago, June 14, the 5-day correlation was -0.80 and the 20-day correlation was -0.39.
SILVER PRICE TECHNICAL ANALYSIS: DAILY CHART (June 2021 to June 2022) (CHART 2)
Silver prices hit their 2022 low in May, and after hitting a confluence of Fibonacci retracements, stability emerged. But stability does not mean recovery, and the consolidation that emerged took the form of a symmetrical triangle. Against the background of the previous bearish move, the preferred breakout direction of the triangle would be lower.
While the momentum has neutralized, silver prices have not risen significantly. Silver prices are intertwined between their daily 5, 8, 13, and 21-EMA envelopes, which are neither in bearish nor bullish sequential order. The daily MACD continues to climb but remains below its signal line, the daily Slow Stochastics hold around their midline. A “sell the rally” outlook remains appropriate as long as the June high at 22.5175 is respected.
SILVER PRICE TECHNICAL ANALYSIS: WEEKLY CHART (November 2010 to June 2022) (CHART 3)
As the range that formed from July 2020 has begun to decline, a longer-term bearish outlook is becoming increasingly appropriate. Momentum remains negative on the weekly chart. Silver prices are below their weekly EMAs of 4, 8, and 13, and the EMA envelope is aligned in a bearish sequential order. The weekly MACD is moving below its signal line, while the weekly Slow Stochastic is holding just above the oversold territory. A drop below the 23.6% Fibonacci retracement of the 2011 high/2020 low range at 20.6500 would offer a strong confirmation signal that the next leg lower has begun.
IG CUSTOMER SENTIMENT INDEX: SILVER PRICE FORECAST (June 21, 2022) (CHART 4)
Silver: Retail trader data shows that 93.81% of traders are net long with a ratio of long to short traders of 15.16 to 1. The number of net long traders is 0.71% higher than that of yesterday and 25.30% higher than last week, while the number of net-short traders is 7.88% higher than yesterday and 3.26% lower than last week.
We generally take a contrarian view of crowd sentiment, and the fact that traders are net long suggests silver prices may continue to decline.
Positioning is less net-long than yesterday but net-long since last week. The combination of current sentiment and recent shifts gives us another mixed bias for silver trading.
— Written by Christopher Vecchio, CFA, Senior Strategist