SILVER TODAY – Prices attempting to stabilise

Nov 21, 2016 - 9:41 AM GMT
by
Short Term:
Medium Term:
Long Term:
Resistances:
R1 15.94 Feb 11 high
R2 16.145 March high
R3 17.71 20 DMA
R4 17.83 40 DMA
R5 18.00 May high
R6 18.32 June 24 high
R7 18.91 100 DMA
R8 19.10 Low end Jul-mid Aug range
R9 19.77 UTL Jan/Feb lows
R10 20.65 Top end Jul-mid Aug range
R11 21.60 July 2014 high
Support:
S1 19.77 UTL Jan/Feb lows
S2 18.91 100 DMA
S3 18.39 August low
S4 17.83 40 DMA
S5 18.00 May high
S6 17.71 20 DMA
S7 17.79 YTD UTL
S8 17.65 200 DMA
S9 17.43 50% Fibo (YTD rally)
S10 16.56 61.8% Fibo (YTD rally)
S11 15.94-16.14 Feb/Mar resistance
S12 15.80 Mar 2016 highs/June low
S13 13.64 Dec low
Stochastics:Converging in low ground
Legend:

DMA = Daily moving average

RL = Resistance line

UTL = Uptrend line

H&S = Head-and-shoulder pattern

Fibo = Fibonacci retracement line

Analysis

  • Silver is attempting to form a price base around $16.50 per oz.
  • The stochastics are converging in low ground and the longer lower shadows on the recent daily candlestick formations suggest selling pressure has been well received.
  • The RSI at 32 suggests silver is oversold in the short term.
  • Additional support below is seen at $16.56, which marks the 61.8% Fibo of the year-to-date rally.
  • Key support could also be found around $16 per oz, a level that capped prices in the first quarter and where support was found in the June price-dip.
  • Prices remain below key moving averages – the 200 DMA at $17.65 per oz and the 20 DMA at $17.71 are acting as immediate resistance.

Other factors

According to CoT data on Friday, the net length among Comex speculators totalled 62,606 contracts in the week to November 15, down 2,663 contracts or 4% from the previous week. We think that speculative positioning will continue to deteriorate over the short term while markets continue to price in tighter monetary policy at the December FOMC meeting. But the fact fund/CTAs have reduced rather than expanded their short exposure into the recent correction suggests sentiment overall remains positive.

Investment demand has proven mixed recently.  

  • ETF holdings stand at 660 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, retail investment demand has quickened somewhat. American Eagle coin sales are running at a 3.5-million-oz pace so far in November. Sales accelerated to 3.8 million oz in October from a rolling three-month average of just 1.4 million oz.

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 1.012.4 billion oz due to output from lead/zinc and gold mines.

Conclusion

The current pause in the dollar’s rise will take some of the pressure off silver although we expect prices to remain soft until the December FOMC meeting at which we expect a 25-basis-point rise in the Fed Funds rate.

But we maintain our view that prices will then return to a modest bull market. This is partly due to the inflationary implications of Trump’s proposal to fund massive infrastructure investments via debt issuance but also because the outcome of the US election signals rising populist sentiment, which could have deeper ramifications in Europe where several key elections are scheduled for next year.

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