Silver Market to soon end its Hibernation
Silver has a long history of wide price variance. Since 1980, the precious metal has traded in a range from $3.505 to $50.36. The long-term silver chart has twin peaks in 1980 and 2011. The high in silver prices came back in 1980 when the notorious Hunt Brothers took the price of the metal to its all-time price pinnacle. However, in 2011, when gold moved to its record nominal high, silver traded to $49.82 and just could not make it above $50 for a challenge of the top that occurred more than three decades earlier.
So far since early February, silver has traded in a tight range between $16.10 and $17. 36 per ounce. Since last July and until April 18, the precious metal had made both higher lows and lower highs as it had been in a period of price consolidation. On the weekly chart, historical volatility in the silver futures market has declined to under 10% for the first time since 2014. Like a polar bear, or groundhog, silver had been in hibernation, but last week it moved to the top end of its trading range and broke the pattern of lower higher on the daily chart.
Silver could be waiting for gold to make a move before it breaks out of its narrowing trading range or vice versa. Critical technical resistance in gold stands at the July 2016 peak at $1377.50 per ounce. The shock of the Brexit referendum in the U.K. drove gold it that high, and in 2018 the yellow metal has been trading between $1300 and just below the significant technical level. There are so many issues facing the world these days that have increased the environment of fear and uncertainty. At the same time, the U.S. dollar had been in a downtrend since the beginning of 2017 providing support for the price of the yellow metal. When it comes to silver, the metal that traded to over $21 per ounce when gold hit its 2016 peak has a lot of catching up to do, but that could occur in a hurry under the right circumstances.
As the weekly chart shows, relative strength when it comes to the price action in silver is in neutral territory. Meanwhile, price momentum turned higher in an area that was close to an oversold condition. Open interest, the total number of open long and short positions in the silver futures market is at almost a record level these days at over 220,000 contracts.
I believe that silver will eventually blast off to the upside when gold breaks through the $1377.50 level and heads above $1400 per ounce. Although volatility in silver is low these days, that is likely to change in a hurry as silver is the precious metal that tends to move the most on a percentage basis in the shortest time frame. The current hibernation of the silver market looks like it could be coming to an end soon as a significant move and return to volatile trading conditions is long overdue in the precious metal. – Andrew Hecht
Silver Prices Have Potential For a 50% Rally
David Lin – Fundamentals are in place for precious metals, especially silver, to significantly break out of current trading ranges, according to a report from Bloomberg Intelligence.
The report said that silver has a history of lagging its industrial metals companions and can rally as much as 50% by simply “catching up.”
“Essentially unchanged from June 2016, silver has plenty of room to catch up to the 50% rally in the Bloomberg Industrial Metals Spot Index and 3% decline in the trade-weighted broad dollar,” the report said. “It’s been about 50 years since silver’s 12-month range was this narrow, increasing the likelihood of a sharp rally.”
Silver has traded range-bound for the last year, testing lows of $15.57 an ounce but barely breaking past $18 an ounce at its highs. Its yellow metal counterpart, by comparison, has rallied 9% in 2017, widening the gold/silver ratio to highs of 82.
Mike McGlone, senior analyst at Bloomberg Intelligence, said that fundamental macro forces, especially a weakening dollar, remain the key catalysts for a potential breakout of range-bound commodities like precious and industrial metals.
“The weakening dollar, strong global purchasing-managers indexes and bottoming inflation are leading macroeconomic-foundation builders,” he said in the report.
The U.S. dollar index rose as much as 0.46% on Monday, reaching the highest levels since early March. However, the greenback has been on a steady downward trend since early 2017, and the largely anticipated Fed rate hikes announced in March did little to bolster its levels.
“Despite the Federal Reserve’s accelerated rate-hike schedule, the dollar declined. Down remains its longer-term path of least resistance,” the report said.
McGlone noted that silver is tightly correlated to industrial metals and has a minus 0.58 correlation to the dollar when measured annually over the last 20 years.
Similar to silver, gold is also to benefit from current market conditions, according to the report.
“Gold generally shines vs. dollar weakness, increasing inflation and bottoming stock-market volatility,” the report said.
Equities tumbled in early April on the back of escalating trade war rhetoric between the U.S. and China, as well as heightened geopolitical tensions in Syria. The VIX index, however, is still hovering around its lowest levels in a month, with some analysts predicting the calm in volatility to be short-lived.
Comex June gold futures last traded lower on Monday, at $1,325.3 an ounce.
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