Silver Technicals Provide Clues
Andrew Hecht of Dynamic Commodities - - Thu Mar 14, 10:24AM CDT

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Silver can be a highly volatile precious metal. The silver market has a long history of much more substantial percentage gains and losses than in gold and other members of the precious metals sector. Since 1980, the price of silver traded in a range from $3.51 to $50.36 per ounce. The high came in 1980, but silver reached a peak at $49.82 in April 2011. The price of silver has not traded below $13.635 since 2009, and it has not ventured below $10 per ounce since 2008.

The most recent peak in the silver market came in July 2016 after the shock of the Brexit referendum in the UK. The price of silver rose to a high at $21.095, but since then, the metal has made lower highs and lower lows. In November 2018, silver fell to $13.86 which was only 22.5 cents above the December 2015 low which is the level of critical technical support in the silver market. The first level of resistance is currently at the recent high at $16.20 and then at the June 2018 peak at $17.35 per ounce. A move above $17.35 would end the pattern of lower highs in the silver market. 

Source: CQG

As the weekly chart highlights, silver was sitting in nowhere land at over the $15.40 per ounce level as of March 13. However, the technical metrics have a good track record of predicting the next move in the precious metal.

Open interest is the total number of open long and short positions in a futures market. In silver, when the metric falls to the 175,000 level or lower it tends to ignite a rally. When it rises to around 220,000 contracts, rallies often run out of steam, and the price corrects.

The slow stochastic is a price momentum indicator. When it rises to overbought territory, the price tends to run out of fuel on the upside. Conversely, when it falls to an oversold condition, it often recovers to the upside. The relative strength metric is also a metric that can be an indicator of the path of silver. When relative strength moves into overbought or oversold territory, it often is a sign of a price reversal in the metal. Silver tends to take the stairs higher and an elevator shaft to the downside when it comes to price action. Therefore, historical volatility typically moves to the upside during downside corrective moves.

While past performance is never a guaranty of future performance in any market, the technical metrics in the silver market can be a guide for short-term traders looking for clues. Silver is a metal that moves on sentiment, and all of the technical tools tell a story about the current state of the market’s sentiment. While other commodities move higher and lower on supply and demand fundamentals and production cost is a critical component of where they stand when it comes to their pricing cycles, silver is a different animal. The majority of silver production is a byproduct of copper, zinc, lead, gold, and other output as it is present in the ores. Therefore, silver’s cost of production is rarely if ever a factor when it comes to the path of least resistance for its price.

Sentiment drives the price of silver, and technical tools often provide a roadmap that can aide traders and investors in the silver market which can become highly volatile, at times.



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