Commodity Trade Mantra

September’s here. Short Gold and Silver at your own Risk – Rather Buy the Dip

Short Gold and Silver at your own Risk - Rather Buy the Dip

Short Gold and Silver at your own Risk – Rather Buy the Dip

As of 2:30 p.m. EST, Silver prices (for December delivery) traded up +$0.032 (+0.17%) higher to $18.705, with today’s trading range between $18.600 and $18.930. The 52-week range for the contract sits at $13.770 – $21.250. Prices throughout this report are measured in U.S. dollars per troy ounce.

When it comes to the currency in which silver prices are denominated, the U.S. dollar traded rather flat today. It is; however, headed for its first monthly gain against the Yen in a very long time. It had gained yesterday on economic data that showed that U.S. home prices rose 5.1% in July.

Housing data has a very strong wealth affect because it is held broadly by many people. Prices of property could fall, due to a seasonal slowdown, and that could weigh negatively on the greenback going forward (giving silver some upside potential).

In general, markets could be quiet for the remainder of the week until the Non-Farm Payrolls figure comes out on Friday. That will have a significant impact on precious metals.


Silver - Recap and Outlook for Aug 31 2016 - ONE


When it comes to gold mining shares in the U.S., they suffered a decline in the month of August (blue box above) and are starting to show signs of fatigue. During that time, base metals were spared of such a sharp decline as the (red) line moved sideways.

This could be partly due to the outperformance of gold miners (relative to base metal miners) since the start of 2016. The chart also shows how base metals had been trading much higher during the previous year (but the spread diminished as the year progressed). Should the ratio return to how it looked back then, then we could be in for continued downward pressure in gold miners.

I should note that the lower indicators have all suffered and could begin to put in a bottom fairly soon which could pause the weakness in gold miners. Also, we are entering a seasonally strong period of time for Gold. As such, I expect the ascending trend channel for gold miners (above) to resume its incline immediately.


Silver - Recap and Outlook for Aug 31 2016 - TWO


The 3-day chart (above) shows the bid of silver (spot) prices sitting at $18.600 as of 2:30 p.m. EST.

In my previous reports, I have identified $18.800 and $18.500 as significant levels of support and resistance (depending on where silver was sitting). You can see that we are presently stuck within that range and most likely will continue to do so until jobs data is released this Friday.

$18.650 would be the middle of this range and, therefore, there is a slight upward bias at this time.


Silver - Recap and Outlook for Aug 31 2016 - THREE


The current gold to silver ratio sits at 70.104 (based on the December contracts). The ratio, when looking at their spot prices, sits at 70.33 (down from 70.62 at the same time yesterday).

Gold (for December delivery) fell -5.20 (-0.39%) lower to $1,311.30/oz. by 2:30 p.m. EST. It traded between $1,306.90 and 1,319.20 today while the 52-week range presently sits at $1,052.60 and $1,384.40.

On the2-day chart (above), you can see that gold’s fluctuations (compared to silver’s) have been more violent as the yellow metal began higher but ended below its counterpart.

The blue trendlines (based upon the MACD peaks) speaks of the possibility that silver should rise higher than where it presently sits.


Silver - Recap and Outlook for Aug 31 2016 - FOUR


On the chart (above), which goes back two days, we can see that the Dec. silver price (candles) has actually outperformed both gold and oil in percentage terms. This is despite the fact that all three were lower during the period.

While silver prices fell -0.64%, gold’s loss was about double that while oil was the clear outlier, losing 5%. This indicates that silver may be under some downward pressure in the near term in order to resume trading more closely with these other dollar-denominated assets.

Most of oils divergence occurred today after the inventory data was released. Crude Oil Inventories rose by 2.276 million barrels when a gain of just 0.921 was expected (previously 2.501). On the other hand, Cushing Crude Oil Inventories declined by -1.039 million when a gains of 0.375 million had been expected.


Silver - Recap and Outlook for Aug 31 2016 - FIVE


On the 1-year chart of the December silver contract (above), we can see that its price has risen much more than one would have assumed if they were looking at the MACD.

This is because the black trendlines (which show the ranges of moves) have greatly diverged. For instance, take a look at the lower lines, one of which is descending while the other continues to march higher.

While the ranges remain intact, traders should be able to identify relatively important entry and exit levels. At the same time, I’d like my readers to understand that the entire channel could sink because it is sitting on a foundation made out of quicksand.

To gain a second opinion, I’ve also included a (green) lower line that provides an alternative price target of below $16.000. Even the red trendline tells us that silver could fall to below $17.000.

My stance is that the best way to break the tie is to take a look at an even bigger picture which shows that silver may be finding investment demand at this seasonally bullish time of year. Wedding season is also a good time to own gold as is the month of September (a month I don’t like to short precious metals) which begins today.




Courtesy: Robert Patyk

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