SILVER TODAY – Prices continue to fall while seeking support

Nov 24, 2016 - 9:27 AM GMT
by
Short Term:
Medium Term:
Long Term:
Resistances:
R1 17.09 Former support
R2 17.53 20 DMA
R3 19.00
R4 20.06 Sept 22 peak
R5 20.13 Sept 6 peak
R6 21.13 High so far
R7 21.60 July ’14 peak
Support:
S1 18.39 August low
S2 17.74 UTL(broken at)
S3 17.53 20 DMA
S4 16.17 Low so far
S5 16.14 March peak
S6 15.82 May low
S7 13.64 Dec low
Stochastics:Bearish
Legend:

DMA = Daily moving average

RL = resistance line

UTL = uptrend line

H&S = head-and-shoulder pattern

Fibo = Fibonacci replacement line

Technical Comment

Analysis

  • Silver initially found support around the long-term UTL after the sell-of. It then seemed to build a base, with prices subsequently recovering to $19 per oz. But that changed on Friday November 11, with prices collapsing to 17.20 per oz, which was followed on November 14 by a drop to $16.65 per oz. Since then prices have slipped to a low of $16.17 per oz. Prices are now looking for a support level that holds.
  • The stochastics remain negative.
  • The next potential support level is the May low at $15.82 per oz.

Other factors

Silver prices have fallen 23% from the high at $21.13 per oz seen in July. This compares with an 14.1% fall in gold prices over the same period. The gold/silver ratio has climbed to around 72.50 from around 66.

The strong dollar seems to be weighing on prices. Given a better economic outlook, combined with the uncertainty in the political arena, we would have thought silver prices would be holding up better than gold prices. For now, though, it seems as though money is coming out of bullion and moving into other metals or asset classes.

The CFTC net fund long position dropped 2,662 contracts in the week to November 15. The selling pressure has recently come from long liquidation but, interestingly, short selling has not been a feature – indeed, shorts have been covering into the weakness. This suggests funds are not bearish – they are simply not bullish either. 

With the market pricing in a 93.5% chance of a 25-basis-point rate rise in US interest rates, we would have thought a rate rise was now discounted. If there is a rate rise, we would not be surprised if prices react in the same way they did last December when the Fed moved – prices rallied soon after the announcement. 

For more information on the silver market, see our recent Spotlight.

Conclusion

The sell-off has been severe. We are surprised that bargain-hunting has not stepped in before now.

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