Silver Price Outlook:
- A bearish silver price flag could form around the 61.8% Fibonacci retracement of the 2020 low/2021 high range.
- A move above the daily 8-EMA – which hasn’t happened since June 21 – would suggest that a bigger bounce is in the works.
- However, rRecent changes in sentiment suggest that silver prices have a bearish short-term bias.
Recession, real returns and the US dollar
Global recession fears are going nowhere, and neither is the torrent of rate hikes levied by major central banks to combat decades-old highs in inflation rates in developed economies. But the past week has produced modest weakness in the US Dollar (via the DXY Index), and US real yields have stopped climbing for the time being. The net result was a period of relative calm for silver prices, which last week fell to a new yearly low. While the worst may not be over for silver prices, it would be foolish to discount the potential for a minor rally before further selling takes place.
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. 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 11:30 p.m. at the time of writing. The 5-day correlation between the VIX and silver the prices are 0.00 and the 20-day correlation is -0.18. A week ago, on July 14, the 5-day correlation was -0.84 and the 20-day correlation was -0.19.
SILVER PRICE TECHNICAL ANALYSIS: DAILY CHART (July 2021 to July 2022) (CHART 2)
After setting a new 2022 low a week ago, silver prices traded broadly sideways, making no significant effort to lower or rebound significantly. It is possible for a bearish flag to form around the 61.8% Fibonacci retracement of the 2020 low/2021 high range at 18.7064. Silver prices remain contained below their daily envelope of 5, 8, 13 and 21 EMA, which remains in bearish sequential order. The daily MACD and the daily Slow Stochastic have started to rise, but remain well below their respective midlines. A close above the daily 8-EMA – which hasn’t happened since June 21 – would be the first sign that a bigger rally is in the works. A drop below last week’s low of 18.1423 would kick off the next leg lower.
SILVER PRICE TECHNICAL ANALYSIS: WEEKLY CHART (November 2010 to July 2022) (CHART 3)
The longer-term outlook remains bearish, although a short-term bounce does occur. “After breaking the 61.8% Fibonacci retracement of the 2020 low/2021 high at 18.7064, a larger reversal may still occur. The next lower level would be the 76.4% Fibonacci retracement at 16 .0061 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 trending lower below its line of signal, while the weekly Slow Stochastic remains in oversold territory.It supports that confidence remains high in the idea that the path of least resistance is lower.
IG CUSTOMER SENTIMENT INDEX: SILVER PRICE FORECAST (July 21, 2022) (CHART 4)
Silver: Retail trader data shows that 93.30% of traders are net long with a ratio of long to short traders of 13.92 to 1. The number of net long traders is 1.20% higher than that of yesterday and 4.44% higher than last week, while the number of net-short traders is unchanged from yesterday and 69.92% 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.
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