SILVER TODAY – Overhead pressure emerges again

Jan 6, 2017 - 10:54 AM GMT
by
Short Term:
Medium Term:
Long Term:
Resistances:
R1 15.80 Mar 2016 highs/June low
R2 15.94 Feb 11 high
R3 16.145 March high
R4 16.20 20 DMA
R5 16.46 40 DMA
R6 17.31 Mid-October lows
R7 17.69 100 DMA
R8 18.00 May high
R9 18.32 June 24 high
R10 18.48 UTL Jan/Apr/Oct lows
R11 19.10 Low end Jul-mid Aug range
Support:
S1 18.39 August low
S2 18.48 UTL Jan/Apr/Oct lows
S3 18.00 May high
S4 17.69 100 DMA
S5 17.83 200 DMA
S6 17.43 50% Fibo (YTD rally)
S7 16.56 61.8% Fibo (YTD rally)
S8 16.48 UTL Jan-Nov
S9 16.46 40 DMA
S10 16.20 20 DMA
S11 15.94-16.14 Feb/Mar resistance
S12 15.80 Mar 2016 highs/June low
S13 13.64 Dec low
Stochastics:Crossed lower in high ground
Legend:

DMA = Daily moving average

RL = Resistance line

UTL = Uptrend line

H&S = Head-and-shoulder pattern

Fibo = Fibonacci retracement line

Technical Comment

Analysis

  • Silver has been in a firmer mood in recent days, vaulting resistance around the 20 and 40 DMAs to test above $16.50 per oz.
  • But the stochastics suggest bullish momentum is fading – the fast line has crossed lower.
  • Scaled-up overhead selling remains a persistent feature for silver while price gains release pockets of scrap supply into the market.
  • Immediate support is expected around $16.20 from the 20 DMA and additional support is seen towards $15.80 per oz, which marked the March highs and June lows.
  • Below the market support is seen around $14.93-14.61 per oz from the February/April lows.
  • Immediate resistance is seen at $16.41 per oz from the January/October UTL and the 20 DMA at $16.39.

Other factors

Net length among Comex speculators dropped for a second straight week over December 20-27, the latest CFTC statistics show. Given our expectations of a resurgence of risk aversion and a resulting pick-up in safe-haven demand in the first quarter of next year, we expect renewed speculative buying in favour of silver sooner rather than later. The recent rally in silver has boosted our conviction.

Investment demand has proven mixed recently:

  • ETF holdings stand at 650 million oz (basis the funds we monitor), down from a recent record of 674.4 million oz, following recent liquidations from the US-listed iShare platform.
  • By contrast, the pace of retail investment demand has picked up somewhat. American Eagle coin sales accelerated to an average of 2.4 million oz per month in the fourth quarter of 2016 compared with 1.44 million oz/month in the third quarter. But stronger year-to-date prices have had a negative impact on sales overall, which totalled 37.7 million oz in 2016, a year-on-year fall of 7.2 million oz or 16%.

Industrial demand appears robust. Silver demand from the photovoltaics industry will rise 11% this year to a record high of 83.3 million oz, according to the latest Interim Silver Market Review from GFMS. Silver demand from ethylene oxide producers is set to remain flat this year at 10.2 million oz after demand doubled last year. But this will be offset by weaker jewellery fabrication demand, which is forecast to drop 8% this year, and from a drop in physical coin and bar sales. Total silver supply is seen falling 3% to 1.0124 billion oz due to reduced output from lead/zinc and gold mines.

Conclusion

The steadier dollar is causing headwinds for silver so far today but the recent step back by the greenback reflects market concerns about the US economic outlook and the potential headwinds created by Trump’s protectionist policies. Given the potential for greater geopolitical volatility in the year ahead, we think silver prices will remain supported while investors gradually turn towards haven assets again. But because silver is still being viewed as a selling opportunity in the short term, there may be further downside risk for the immediate outlook.

All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.