SILVER TODAY: Expect pullback to last but price dips should remain attractive

Short term: Flat
Medium term: Flat
Long term: Flat
R1 17.78 2019 high 
R2 18.00 Psychological
R3 18.21 April 2017 high
S1 17.85 20 DMA
S2 16.00 Psychological
S3 15.92 August low
S4 13.89 2018 low

BB - Bollinger band
DMA - daily moving average
HSL - horizontal support line
SL - support line
MACD - moving average convergence divergence
U/DTL - up/downtrend line
RSI - relative strength index
H&S - head-and-shoulder pattern

  • Selling pressure has returned to silver - the extremely negative weekly candlestick is strong evidence of a counter-reversal trend.
  • Short-sellers now have a real chance to mount an attack to the downside, potentially retesting several key technical support levels.
  • This should test the bulls’ conviction in the coming weeks. Still, we think this technical consolidation remains part of a healthy setup for a longer-lasting bull market.
  • Although we foresee selling over the next few weeks, with the 20 WMA about to complete a bullish cross-over above the 100 WMA, price dips should remain attractive for technical buyers.
Macro drivers
Global risk sentiment has started to stabilize following confirmation that the United States and China will restart trade negotiations in October. This has given global markets some respite, with global bond yields recovering some ground. Further support came from the Chinese central bank’s announcement of a cut to the reserve requirement ratio (RRR) for domestic banks for the third time this year. The combination of improved global risk sentiment, elevated silver prices and the reduced need for haven assets boosted selling interest in the short-term.

Latest net speculative funds positioning in silver was in line with price, which hit a fresh 2019 high at $19.65 per oz. The US commodity futures trading commission (CFTC) reported buying of 2,273 contracts in the week to September 3 via 1,489 new longs and the covering of 784 shorts. Silver’s net long fund position (NLFP) expanded to 62,125 contracts, just below the July 2019 high of 64,297 contracts.

But with such an elevated NLFP, the risk of profit-taking increases - indeed, we expect the next report to show there was selling and therefore a decline in silver’s bullish exposure.

Long-term ETF investors were keen sellers, removing 26.19 tonnes on September 5. This lowered total holdings to 22,405.46 tonnes, down from this year’s high of 22,452.51 tonnes. Further divestment could also mean that long-term investors are happy to lock in profits for now.

The healthy technical consolidation in silver has just started; we will give it time to test the bulls’ conviction.

All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.


September 09, 2019

10:34 GMT