Silver Price Forecast: Rising US Real Yields Continue to Weigh

Silver Price Outlook:

• Silver prices remain under pressure as US real yields rise further, supporting a stronger US dollar.
• The momentum has turned more bearish, and a retest of the yearly lows at 18.1423 may not be far away.
• In turn, rRecent changes in sentiment suggest that silver prices now have a bearish bias.

Strengthening Headwinds

The resurgence of the US dollar (via the DXY index) and the continued rise in US yields – both nominal and real Treasury yields – remain headwinds for near-term silver prices. Regarding the latter, the real US 10-year rate has gone from +9 basis points on August 1 to +46 basis points today, its highest level since July 21; historically, rising US real yields have been negatively correlated with silver prices. As global recession fears proliferate as central banks raise rates to combat rising inflation – and with price pressures likely to increase later in the year as the global energy supply crisis unfolds – the headwinds that silver prices have been facing are only getting stronger in the near term.

Silver Price and Volatility Relationship Still Weak

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 fact that equity market volatility rose early this week without silver prices benefiting was a concern.

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 23.22 at the time of writing this report. The 5-day correlation between the VIX and silver the prices are +0.69 and the 20-day correlation is -0.15. A week ago, on August 17, the 5-day correlation was +0.58 and the 20-day correlation was -0.23.

SILVER PRICE TECHNICAL ANALYSIS: DAILY CHART (August 2021 to August 2022) (CHART 2)

Last week it was noted that “a drop below the August low at 19.5519 would open the door for a return to yearly lows at 18.1423”. This condition has been reached, increasing the likelihood of a return to 2022 lows in the near term. Silver prices are below their daily envelope of 5, 8, 13, and 21 EMA, which is in bearish sequential order. Momentum remains weak, with the daily MACD trending lower below its signal line, while the daily Slow Stochastic remains in oversold territory. Further losses cannot be excluded in the immediate future.

SILVER PRICE TECHNICAL ANALYSIS: WEEKLY CHART (November 2010 to August 2022) (CHART 3)

Nothing has changed for the longer term perspective. “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 2020/2021 low range at 18.7064, suggesting that the bull run in 2020 and 2021 has ended.Silver prices are still below their weekly EMAs of 4, 8 and 13, and the l The EMA is lined up 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 break back above- above their midline.The path of least resistance may be lower, especially if US real yields remain high and the US dollar rebound gathers momentum.

IG CUSTOMER SENTIMENT INDEX: SILVER PRICE FORECAST (August 24, 2022) (CHART 4)

Silver: Retail trader data shows that 93.40% of traders are net long with a ratio of long to short traders of 14.15 to 1. The number of net long traders is 3.10% higher than that of yesterday and 10.85% higher than last week, while the number of net-short traders is 10.84% ​​lower than yesterday and 42.86% lower than last week.

We generally take a contrarian view of crowd sentiment, and the fact that traders are net long suggests that silver prices may continue to decline.

Traders are sharper than yesterday and last week, and the combination of current sentiment and recent shifts gives us a bearish contrarian trading bias for stronger silver.

— Written by Christopher Vecchio, CFA, Senior Strategist