Silver Price Outlook:
- Silver course broke out of the multi-week symmetric triangle down as expected, falling to new yearly lows.
- A steeper decline towards 18.7064 may be in its infancy.
- However, rRecent changes in sentiment suggest that silver prices have a bullish short-term bias.
Fundamentals Drive Technical Breakdown
Silver prices hit a new yearly low today, continuing a series of strong selling pressures after the symmetrical triangle seen last week has given way. These are the lowest levels seen since July 2020, and there is little reason to think the worst is over.
Nonetheless, fundamental headwinds remain significant. The continued rise in U.S. real yields – nominal U.S. Treasury yields minus U.S. inflation expectations (measured by breakevens and inflation forward swaps) – coupled with global recession fears has created a challenging environment for silver price. As a result, nothing has changed: “the weak fundamental silver price narrative underpins a still weak technical outlook.”
Silver Price and Volatility Relationship Shift
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 (signaling 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. It may take a further spike in US stock market volatility for silver prices to regain some near-term stability.
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 28.87 at the time of writing. The 5-day correlation between the VIX and silver the prices are -0.79 and the 20-day correlation is -0.32. A week ago, on June 23, the 5-day correlation was +0.85 and the 20-day correlation was -0.46.
SILVER PRICE TECHNICAL ANALYSIS: DAILY CHART (June 2021 to June 2022) (CHART 2)
In setting a new 2022 low today, silver prices broke through a confluence of Fibonacci retracements that helped close the previous yearly low in May. It was planned, as in last week’s commentary, it was noted that “the consolidation that has emerged has taken the form of a symmetrical triangle. Against the background of the previous bearish move, the preferred breakout direction of the triangle would be lower.
Momentum took a downward turn. Silver prices are below their daily 5, 8, 13, and 21-EMA envelope, which is in bearish sequential order. The daily MACD is now down while below its signal line, and the daily slow stochastics are back in oversold territory. A “sell the rally” outlook remains appropriate.
SILVER PRICE TECHNICAL ANALYSIS: WEEKLY CHART (November 2010 to June 2022) (CHART 3)
As previously stated, “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 lower leg has begun”. Simultaneously, this may mean that a move towards the 61.8% Fibonacci retracement of the 2020 low/2021 high range at 18.7064 has begun. 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 signal line, while the weekly slow stochastic is back in oversold territory. Confidence remains high that the path of least resistance is lower.
CUSTOMER SENTIMENT INDEX IG: SILVER PRICE FORECAST (June 30, 2022) (CHART 4)
Silver: Retail trader data shows that 91.29% of traders are net long with a ratio of long to short traders of 10.49 to 1. The number of net long traders is 4.55% lower than that of yesterday and 14.77% lower than last week, while the number of net-short traders is 16.76% higher than yesterday and 31.17% 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