Technical Aspect:

  • Silver is showing a clearly recognisable bottoming consolidation that lasted for a whole year (2015). Anyone remember how the bottom of USDJPY looked like?
  • XAGUSD bottomed at the dawn of 2016. If you are a subscriber of ForexAnalytix you will have probably read plenty of times in my analysis about the importance of seasonality (tops and bottoms have the tendency to appear way more often than statistics would suggest near the beginning or end of a month / year etc.)
  • A few days ago we registered an RSI higher than 70 (on the weekly) for the 1st time after 2011. Yes, that means it was overbought on the S/T but you get those kind of  “signals” when the trend is up, not down.
  • Very clear impulsive structure from an Elliott Wave standpoint (currently at 4th wave of III) suggests a new high, another correction and probably another high after that before a deeper correction.
  • Silver hasn’t even retraced 23.6% of the multiyear drop.
  • We are currently sitting on top of important horizontal support ($18.50). IF that fails $17.70 is another great level to try being long.

Steve Voulgaridis

Disclaimer: As obvious from this post, both Steve and Stelios believe in the recovery of silver and hence are long the metal (from lower levels).

Macro Aspect:

Silver has always been closely correlated with gold. The fall from the 2011 highs has been substantial, with the recent lows representing a staggering 70% drop. Silver has the blessing (or some would say it’s a curse) of being both a monetary metal as well as having heavy industrial use, and for this reason it’s been hit along with oil & commodities.

Silver has built a solid base in 2016 and there are several reasons why it should build on this and reach significantly higher levels:

  • Global growth and inflation remain at historically very low levels.
  • Most central banks remain on an easing bias, while the Federal Reserve is following a very shallow hiking path.
  • Global yields are at record lows, with a staggering $10 trillion of global bonds now yielding negative.
  • Central bank balance sheets keep growing at a steady pace given most western countries’ persistent deficits, and thus currency debasement continues unabated.
  • Geopolitical risk remains elevated and this gives steady flight-to-safety support to gold and silver.
  • There has been very strong demand for physical silver over the past few years and this is projected to continue. Apart from demand for coins & bars, there is increasing demand in applications such as solar panels, consumer electronics and medical use.

It’s a common belief that hiking cycles are particularly bad for silver but this isn’t always true. For example, in the 2004-2006 Fed hiking cycle silver rallied roughly 100%. When rates start going up and the global economy recovers, the industrial / medical demand for silver should give it a much bigger lift than markets believe.

Finally on a technical aspect, silver has recently shown bullish price action following Janet Yellen’s Jackson Hole speech. The US dollar surged but silver failed to sell off; an initial medium term target of $25-$26 should be quite realistic for all the above reasons.

Stelios Konto