Silver Price Outlook:
- Silver prices reversed sharply, dropping to a group of important Fibonacci retracements that were previously support.
- A rebound in US real yields and a stronger US dollar are proving problematic in the near term for silver prices.
- However, rRecent changes in sentiment suggest that silver prices have a bullish bias.
Real Yields and US Dollar Rebound Weigh
After surging in late July and early August, the silver price rally hit a significant hurdle. US real yields have risen not insignificantly over the past two weeks (the US 10-year real yield rose from +0.09% on August 1 to +0.35% today), while a Stronger US dollar is acting as a good headwind. Against a backdrop of global recession fears continuing to escalate as major central banks continue to aggressively hike rates, silver prices saw the hurdles pile up fairly quickly at the start of the month.
Silver Price and Volatility Relationship Still Weak
Both gold and silver are precious metals that typically 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. A lackluster volatility environment in US equities does little for silver prices in the near term.
VIX (US S&P 500 VOLATILITY) vs 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 20.53 at the time of writing. The 5-day correlation between the VIX and silver the prices are -0.21 and the 20-day correlation is -0.23. A week ago, on August 10, the 5-day correlation was -0.07 and the 20-day correlation was -0.52.
SILVER PRICE TECHNICAL ANALYSIS: DAILY CHART (August 2021 to August 2022) (CHART 2)
After rising after the July Fed meeting, the silver price rally stalled at a group of important Fibonacci levels: the 23.6% retracement of the 2011 high/2020 low ; and the 50% retracement of the 2020 low/2021 high range. Silver prices have fallen below their daily envelope of 5, 8, 13 and 21 EMA, which is neither in a bearish sequential order nor bullish. But the momentum is quickly fading, with the daily MACD issuing a bearish cross just above its signal line, while the daily Slow Stochastics have fallen out of overbought territory. A drop below the August low at 19.5519 would open the door for a return to yearly lows at 18.1423.
SILVER PRICE TECHNICAL ANALYSIS: WEEKLY CHART (November 2010 to August 2022) (CHART 3)
Despite the recent rebound, there is an argument to be made that the longer-term outlook remains bearish. Ahead of the late July rally, silver prices broke the 61.8% Fibonacci retracement of the 2020 low/2021 high range at 18.7064, suggesting the bull run in 2020 and 2021 has come to an end . Silver prices are still below their weekly EMAs of 4, 8, and 13, and the EMA envelope is aligned in a bearish sequential order. The weekly MACD is about to issue a bearish cross while below its signal line, and the weekly slow stochastics failed to move back above their middle line. The path of least resistance may be lower, especially if US real yields remain elevated and the US Dollar rebound gathers momentum.
IG CUSTOMER SENTIMENT INDEX: SILVER PRICE FORECAST (August 17, 2022) (CHART 4)
Silver: Retail trader data shows 88.43% of traders are net long with a long to short trader ratio of 7.64 to 1. The number of net long traders is unchanged from yesterday and 1 lower .55% higher than last week, while the number of traders’ net-shorts is 8.23% higher than yesterday and 32.98% higher 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.
Still, traders are net less long than yesterday and compared to last week. Recent shifts in sentiment warn that the current silver price trend may soon reverse higher despite traders staying sharp.
— Written by Christopher Vecchio, CFA, Senior Strategist