Commodity Trade Mantra

Buy Physical on Silver Price Dip, Futures Traders Need Some Patience

Buy Physical on Silver Price Dip, Futures Traders Need Some Patience

Buy Physical on Silver Price Dip, Futures Traders Need Some Patience

As of 3:00 p.m. EST, Silver price (for September delivery) traded up +$0.135 (+0.69%) higher to $19.785, with today’s trading range between $19.625 and $19.940 for the contract.

Silver - Recap and Outlook for Aug 18 2016 - ONE

The 3-day chart (above) showed the bid of silver (spot) prices sitting at $19.655 at 3:33 p.m. EST. This chart shows us that the price of silver today (green line) moved back into a neutral position between yesterday’s (red) line and the blue one from the day before.

Silver (as well as gold) tend to have a bias to move back towards where it recently traded a large percentage of the time. With the sharp spike lower in the red line, investors may have attempted to put on a long position and would be sitting in profit right now (perhaps with a stop loss above break-even).

Silver - Recap and Outlook for Aug 18 2016 - TWO

The current gold/silver ratio sits at 68.340 (based on the September contracts) or 68.60 based upon their spot prices. Gold (for September delivery) rose +8.90 (+0.66%) higher to $1,352.10 with today’s range at $1,345.20 to 1,354.90.

On the chart (above), we can see the September contracts of both gold and silver since the start of August. What we can see, is that the spread between the price movements of the two metals has widened in the past couple days (orange lines).

On August 10th and 11th, we can see that silver was outperforming, but gold has recently left silver behind. This could present a small buying opportunity in silver (as represented by the green arrows). Keep in mind that silver may not necessarily rise, as gold could also be the one to correct lower. Perhaps we could see a combination of both, which is why I’ve added a red arrow for gold.

The light-blue trendline (based upon the MACD troughs) suggests that my theory of both metals moving back towards each-other has a strong probability, and hints at a silver price of just below $20.00 per ounce.

The Slow Stochastic will need to turn lower eventually, but I am not confident enough to draw a red line (yet) because it may be able to postpone any declines (especially since its trajectory is still upward).

Silver - Recap and Outlook for Aug 18 2016 - THREE

When looking at prices of precious metals (and other commodities) it is worthwhile to take a look at the currency in which they are measured (and typically move inversely as a result). By looking at the move of the US dollar, we can better anticipate the future price moves in metals.

The dollar weakened significantly against all but one major currency today. That helped push commodities higher today. On the chart (above) we can see the euro measured in US dollars.

We can see today’s sharp gains in the euro versus the greenback. This was supportive for silver and gold today. Furthermore, we can see that a divergence occurred at the end of July (beginning of August) as expressed by the orange lines.

This, should it correct, means that the Euro could fall a couple hundred pips and cause selling pressure on silver prices. For now, we can read into it as the market being optimistic on the euro and/or pessimistic for the US dollar.

The fundamental cause for this sentiment is that investors are losing faith in the possibility of a rate hike in the U.S. occurring sooner (rather than later). This is supported by the fed minutes that were just released.

Since the markets are now less convinced that the Federal Reserve will move to increase rates this year, bond yields are depressed. Oil, also traded in US dollars, has now risen for the 6th straight day, with Brent oil rising to $50 again, which is also helping to support the price of silver.

Finally, keep in mind that as we near the end of the summer doldrums, the silver price could be significantly impacted. Seasonality plays a key role at this time of year, which has historically been the best time of year to buy gold and silver. Now could be a good time to look for buying opportunities on dips.

Silver - Recap and Outlook for Aug 18 2016 - FOUR

On the 1-year chart (above) we can see that the silver price is battling between conflicting market forces and indicators.

While it may be a dangerous time of year to go short on silver (the metal could rise for the next 2 or more months) we see a clear divergence in the price compared to the MACD trendline (orange).

This hints at the possibility of a decline to far below even the lower Bollinger Band. The possibility of both Bollinger Bands commencing a prolonged down-trend cannot be ruled out at this time. Based on my own estimates, I would be surprised if the lower Bollinger Band doesn’t move back down towards about $17.500.

Normally, I would even short silver for this reason, but because we are at a very strong time of year for silver, and the fact that the Slow Stochastics has more room to begin climbing from here, my final stance is to be on the sidelines for traders (but for buyers of physical silver to keep accumulating, especially if the silver price dips temporarily).

 

 

 

Courtesy: Robert Patyk

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