Silver Price Outlook:
- Silver price losses deepen, suggesting a larger top is forming.
- Silver price momentum remains in a severely bearish tone.
- Recent changes in sentiment suggest that silver prices have a short-term mixed bias.
Long-term line break
Silver prices face two fundamentally important issues. First, rising nominal US Treasury yields coupled with falling US inflation expectations (as measured by breakevens and inflation forward swaps) caused US real yields to surge; historically, positive US real returns have been correlated with losses in silver (and gold as well). Second, thanks to declining economic prospects in developed economies, the role of silver in industrial use is also compromised.
In turn, the deteriorating fundamental silver price narrative is fueling a rapidly weakening technical outlook. Silver prices are seeing significant bearish momentum as a multi-year range dating back to July 2020 now threatens to turn into a longer-term top.
Silver prices and the volatility relationship are eroding
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. Unfortunately for silver prices, the broader market volatility has been catalyzed by elevated expectations of Federal Reserve rate hikes fueling higher US yields, providing a headwind.
VIX (US S&P 500 VOLATILITY) versus silver price
US stock market volatility (as measured by the US S&P 500 volatility hint, VIXfollowing the expectation of stock market volatility based on S&P 500 index options) was trading at 32.29 at the time of writing. The 5-day correlation between the VIX and money the prices are -0.69 and the 20-day correlation is -0.75. A week ago, on May 4, the 5-day correlation was +0.51 and the 20-day correlation was -0.68.
SILVER PRICE TECHNICAL ANALYSIS: DAILY CHART (May 2021 to May 2022) (CHART 2)
Silver prices just broke below their 2021 low yesterday, falling below 21.4238 for the first time since July 2020. Today’s rally attempt to rally above support of the nearly two-year range fails. Momentum maintains an aggressive bearish profile. Silver prices are below their daily envelope of 5, 8, 13, and 21 EMA, which is in bearish sequential order. The daily MACD’s descent below its signal line continues unabated, while the daily Slow Stochastics are nestled in oversold territory. A “sell the rally” outlook remains appropriate for the near future.
SILVER PRICE TECHNICAL ANALYSIS: WEEKLY CHART (November 2010 to May 2022) (CHART 3)
The longer-term view no longer warrants a neutral outlook if the range since July 2020 turns lower; instead, a bearish outlook would be appropriate. As on the daily timeframe, the momentum is increasingly negative on the weekly chart: silver prices are below their weekly EMAs of 4, 8 and 13, which line up in a bearish sequential order. The weekly MACD breaks below its signal line, while the weekly slow stochastic has moved into oversold territory for the first time in 2022. A return to the 23.6% Fibonacci retracement of the 2011 high/2020 low range at 20.6500 would be the first downside target.
IG CUSTOMER SENTIMENT INDEX: SILVER PRICE FORECAST (May 11, 2022) (CHART 4)
Silver: Retail trader data shows that 95.87% of traders are net long with a ratio of long to short traders of 23.20 to 1. The number of net long traders is 2.43% lower than that of yesterday and 5.77% higher than last week, while the number of net-short traders is 2.00% higher than yesterday and 9.73% 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.
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