SILVER TODAY – Price supported by 20 DMA

Dec 12, 2016 - 10:20 AM GMT
by
Short Term:
Medium Term:
Long Term:
Resistances:
R1 15.94 Feb 11 high
R2 16.145 March high
R3 16.71 20 DMA
R4 17.31 Mid-October lows
R5 17.31 40 DMA
R6 18.00 May high
R7 18.07 UTL Jan/Apr/Oct lows
R8 18.32 June 24 high
R9 18.41 100 DMA
R10 19.10 Low end Jul-mid Aug range
R11 21.60 July 2014 high
Support:
S1 18.41 100 DMA
S2 18.39 August low
S3 18.13 UTL Jan/Apr/Oct lows
S4 18.00 May high
S5 17.76 200 DMA
S6 17.31 40 DMA
S7 17.43 50% Fibo (YTD rally)
S8 16.71 20 DMA
S9 16.56 61.8% Fibo (YTD rally)
S10 16.28 UTL Jan-Nov
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

Analysis

  • Silver has slipped lower after stalling at $17.30 per oz from the 40 DMA and the mid-October lows.
  • Price have found scaled-down support, with the 20 DMA ($16.81) providing immediate support.
  • The stochastics have crossed lower; however, sentiment is not looking overly bearish.
  • Further resistance is expected around $17.30.
  • Scaled-down support is seen around $16 per oz, a level that capped prices in the first quarter and where support was found in the June price dip.

Other factors

Monetary policy will continue to overshadow price sentiment in silver – the Federal Reserve holds its long-awaited December FOMC meeting tomorrow and on Wednesday. While a 25-basis-point rise in the Fed funds rate to 0.75% is a virtual dead cert, markets will be more interested in the Fed’s economic projections and particularly how long-term interest rate expectations have changed since the September meeting following the November election result.  

The latest CoT data showed net length among Comex speculators increases for the first time in four weeks, rising 325 contracts or 1% in the week to December 6. Funds/CTAs re-engaged on the long side, adding 2,010 contracts, but this was offset by 1,685 contracts of new shorts. The return of new longs is encouraging but the fact funds have viewed price gains as a short-selling opportunity is not a bullish signal. 

Investment demand has proven mixed recently: 

  • ETF holdings stand at 654.8 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 totalled 3.06 million oz in November. But stronger year-to-date prices have had a negative impact on sales overall, which totalled 37.5 million oz in the 11 months to the end of November, 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

In broad terms silver is consolidating. Having stalled at $17.30 per oz last week, the metal is holding above the 20 DMA for now – this will determine whether prices make another test of the resistance or dip back to $16.  We expect silver to hold ground within its recent parameters until Wednesday’s FOMC meeting while the market attempts to gauge longer-term interest-rate expectations.

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