Volatility Could Be Brewing For Silver

With Silver prices continuing to coil, it remains touch and go as to which way it could break. But with volatility seemingly brewing around a pivotal area, when it breaks, it could be hard and fast.

With Silver prices continuing to coil, it remains touch and go as to which way it could break. But with volatility seemingly brewing around a pivotal area, when it breaks, it could be hard and fast.

Ultimately, we suspect silver’s price action is fast-approaching an inflection point. As Fawad Razaqzada pointed out just yesterday, silver has clearly stalled around an important level on the weekly chart whilst traders decide their next move. Despite threatening to break lower on Tuesday, the bullish wedge pattern we’ve been tracking has held on by the skin of its teeth, only to see bullish momentum return and drag it from its lows. Now testing the upper trendline, a break above $15.10 would clear the trendline and break above last week’s doji high and confirm the bullish wedge.

However, a quick look at market positioning paints a bearish view. As noted in Monday's COT report, silver’s bullish positioning is at its weakest level this year and on the verge of flipping to net-short exposure on rising volumes. Furthermore, managed funds are net-short for a second consecutive week with gross-short exposure trending higher, and there are no signs of a sentiment extreme. As we tend to assume that managed funds know what they’re doing, it suggests further downside for oil. To counter that, if prices rally and they’re caught off-guard, we’ll have some deep pockets scrambling to cover their shorts and put more fuel onto a bullish fire. This only underscores our belief that volatility is brewing whichever way it breaks.

A close either side of the $14.75 - $15.10 could be key and have ramifications for sentiment next week.

  • For bullish setups: We’d like to see a clear break above $15.10, as this invalidates both the bearish trendline and last week’s high. Although, for a cleaner and more sustainable move, the US dollar’s rally must to lose some steam.
  • For bearish setups: We’d prefer to see a close beneath $14.75, as this takes it comfortably back within range and confirm positioning among managed funds. Whilst within range it could favour a ‘sell the rally’ approach which it remains beneath the $14.90 highs.

For now, it’s simply a matter of watching and waiting.

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account