Silver Price - Technicals vs. Fundamentals

Let's review the primary operating motive of this series of articles. There are hundreds of fundamental factors driving the precious metals markets. (Currency debasement; potential stock market declines; geopolitical instability; jewelry demand; and industrial fabrication being the major ones). However, no one can ever know the sum of all fundamental factors impacting a market. To attempt to do so would require complete knowledge of all the factors affecting every single participant in the international market. Such is an impossibility. Let's take a look at the silver price updates.

The one place in which every market participant comes together is in the decision to buy or sell at a specific price point. Price is where the sum of all market participants converge.

Thus, by studying price foremost, we can observe what is happening in the market. We do this by filtering out the ‘noise’ that so often accompanies fundamental-only analysis. And by following trends in price. Which is the sum of the buyers and sellers. Then we can align ourselves with the strongest ones in an attempt to profit.

Silver Price Update

Let us take a good look at silver this week. Silver price finished higher last week by 0.13 cents to close at $16.40. This was the final trade on the New York COMEX on Friday afternoon. It was a gain of 0.8%. In the very short term, the RSI momentum indicator (top of the chart) correctly gave us a warning of this bounce that is underway. The RSI had registered the most oversold reading since the 2015 bottom, 

We have yet to see how far this advance will continue.

We would like to see silver regain its broken rising linear trendline. (dashed blue). This is by maintaining a weekly close above $16.50. Such would register the recent break as a “false breakdown.” This is at the most oversold reading in nearly two years. It would solidify this low as an essential medium-term bottom.

Let's say $16.50 fails to regain again over the next two weeks and silver tops out below the broken trendline. We will consider this a sign of caution.

A sign of caution does not mean we negate the entire thesis for a Q3 – Q4 breakout in the metals. It would suggest, however, that silver could continue to lag throughout the initial stages of gold’s advance. It might fail to exceed its 2016 high. ($21.25). This is within the same immediate time as when gold finally exceeds its relative $1,378 peak.

We remove support lines between $16.75 - $17.25 from the silver chart above from the version from several weeks ago. After serving as an important magnet for prices on four successive junctures from last October through the previous week, the zone fails to hold during the most recent decline. For whatever reason, a new group of sellers has shown up. Or, buyers did not appear within that range as previously. So we must adjust our perspective and outlook accordingly.

Here's a positive side. Since this level is no longer a support zone, it will also no longer be a resistance level. As silver moves higher, sellers should be mostly absent within this region.

There is little in the way of resistance until $17.75. Which becomes our target on a recapturing of the broken blue trendline at $16.50. This was the pivot low from the April correction.

Over the long run, we have targets much higher than $17.75. However, over the short run, this should serve as short-term resistance. Silver must at minimum consolidate the above Important Support at $15.75. This is to keep the bull market thesis intact during the remainder of 2017. A break below this level would signal a significant red flag for gold. It might cause us to have to rework the 2017 – 2020 long-term model.

SLW / SLV Ratio

We often use the ratio between large-cap silver miners and silver bullion itself. This is to gauge short-term pivot points in the metals. Silver Wheaton (SLW) is our large-cap miner of choice. It is a sector leader across most timeframes. Below we update the chart. We have SLW on top and SLV (silver bullion proxy) immediately below. Note that SLW now is firmly within the 2017 mid-consolidation. (above the green support band). Silver itself is well below its correlated price zone.

In essence, SLW often discounts short-term price movements that will not last in the underlying silver market.

This leading indicator is calling for a continued recovery in silver over the intermediate term. However, please note that this signal can sometimes occur early. I.e. immediate weakness in silver can happen for the first few days, and then the recovery begins. Those looking to do short-term trading in silver should use other confirming technical indicators. Indicators such as momentum and trendlines analysis.

Christopher Aaron,
Bullion Exchanges Market Analyst

Christopher Aaron has been trading in the commodity and financial markets since the early 2000s. He began his career as an intelligence analyst for the Central Intelligence Agency. This is where he specialized in the creation and interpretation of pattern-of-life mapping in Afghanistan and Iraq.

Technical analysis shares many similarities with mapping. They both base on the observations of repeating and embedded patterns in human nature.

His strategy of blending behavioral and technical analysis has helped him and his clients. It helps to identify both long-term market cycles and short-term opportunities for profit.

This article is a third-party analysis. It does not necessarily match the views of the Bullion Exchanges. Readers should not consider it as financial advice in any way.