Is silver about to shine once more?
Posted on: 11 February 2019 , by: Darren Sinden , category: Market Review
Contrarian: could uncertainty about global growth take silver prices higher?
We last looked at the upside potential for silver in late November. Since then, the metal moved higher throughout the remainder of that month and into December before spiking sharply higher by the broad market volatility. As other markets regained their composure, money left safe havens and silver prices pulled back before taking another leg higher.
Are we about to see something similar happen again?
The commitment of Traders data
Silver is one of the commodities tracked by the CFTC Commitment of Traders report that shows the positioning of various groups in US futures contracts. The collection and distribution of the data were delayed by the US government shutdown. However, reports are now being published again and are showing significant short positions in silver among speculative or non-commercial traders.
This data also shows that money managers have come into the New Year with a bullish view on the metal. According to the CFTC reports, Fund managers’ long positions in silver grew across December to around 30,000 lots. Against that background, silver prices could be squeezed higher from here.
The macro background
Precious metals pay no dividends or coupons, and they often don't fare well during periods of rising interest rates. As we have heard from both the US Federal Reserve and the Australian RBA, interest rates are currently on pause and could even be cut.
An ongoing slowdown in the economies of the Eurozone and China helps bolster the case for diversification into safe-haven assets such as silver and gold. The latter saw the highest level of central bank buying for almost 50 years during 2018.
This information doesn’t have much bearing on the short-term price action of silver, but it does help set the tone of investor sentiment.
What do the technicals say?
To determine the short-term price action, we need to look at the technicals and the four-hourly chart above.
The uptrend line in light blue began in mid-December was tested a month later in January, but stood firm. Currently, it continues to offer trend support, coming in around $15.595, adjacent to the S1 support on the chart above.
Silver has bounced away from that support and is testing back towards the short-term downtrend line extended from the highs of the 29th of January. That line comes in at $15.728, a price level that also acted as horizontal resistance at the beginning of January.
Trigger prices to watch
A move above here and $15.78 could be the precursor to a more significant move higher, through levels such as the 4th of January high at 15.87, and the 30th of January high print of $15.978. I note that the recent high is up at $16.185.
There have been golden crosses on the daily charts of both Comex and London spot silver, with the 50-day EMA lines crossing up through their 200-day counterparts. RSI 14 on the four-hourly chart is also beginning to move higher. These are signs of rising price momentum.
Price action can be a good indicator about the right time to get long of silver, so let’s use that to guide us rather than second-guessing it.
Any stop-losses on long positions could be placed below the S1 support at $15.595, a breach of which would be seen as a continuation of the short-term downtrend.
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