Home Forex Markets XAG/USD silver price trend analysis: a bigger storm is brewing, short rallies still apply

XAG/USD silver price trend analysis: a bigger storm is brewing, short rallies still apply

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XAG/USD silver price trend analysis: a bigger storm is brewing, short rallies still apply


The price of silver fell below the 61.8% Fibonacci retracement level of 18.7064; a valid break below suggests that silver will face a more significant sell-off, and the downside to 16.00 may still be valid.

Rate hikes and recession fears

Silver prices once again refreshed their yearly lows, extending the sell-off sparked by a break below the support of a symmetrical triangle in late June. Silver prices fell below the 18.7064 level, an important level I pointed to in late June, suggesting that a deeper downside may be brewing for silver.

The fundamentals have hardly changed. “Continuously rising U.S. real yields — nominal U.S. Treasury yields less U.S. inflation expectations (as measured by breakeven and inflation swap forwards) — combined with global recession fears create a tough environment for silver price action.” Weak fundamentals continue to support an equally weak technical outlook.

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Silver and Volatility Correlation Weakening

Both gold and silver are precious metals that tend to have safe-haven appeal during uncertain times in financial markets. While other assets don’t like higher volatility because it means more uncertainty about cash flows, dividends, coupon payments, etc., precious metals tend to benefit from higher volatility as uncertainty boosts silver’s Safe haven appeal. But the recent sluggish environment of U.S. stock market volatility has not had much impact on silver prices.

Charts drawn with Tradingview

As of this writing, U.S. stock market volatility (measured by the U.S. S&P VIX, or VIX Fear Index, which tracks market volatility expectations based on options on the S&P 500) is trading at 26.33. The 5-day correlation between the VIX Fear Index and silver prices is -0.84 and the 20-day correlation is 0.19. A week earlier, on July 7, the 5-day correlation was -0.67 and the 20-day correlation was -0.17.

Silver Price Action Technical Analysis: Daily Chart

XAG/USD silver price trend analysis: a bigger storm is brewing, short rallies still apply

Charts drawn with Tradingview

As silver has refreshed its lows for the year, the author’s expectation for silver price movements at the end of June is that “silver prices will move towards the 61.8% Fibonacci retracement level of the trading range constructed by the 2020 low/2021 high. i.e. 18.7064 Mobile” has been implemented. The sell-off in silver prices is in line with the bearish signal that was released a few weeks ago as prices moved below the symmetrical triangle. Momentum continues to stay down. Silver prices are currently trading below the daily 5-, 8-, 13- and 21-EMAs, which are all trending down. The daily MACD indicator continued to decline and traded below the signal line; the slow stochastic indicator held steady in oversold territory. For the foreseeable future, the “sell on rallies” argument may still hold true.

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Silver Price Action Technical Analysis: Weekly Chart

XAG/USD silver price trend analysis: a bigger storm is brewing, short rallies still apply

Charts drawn with Tradingview

After effectively falling below 18.7064, it may face a more significant reversal. The next downside target is the 76.4% Fibonacci retracement level of 16.0061. Silver prices are currently trading below the weekly 4-, 8- and 13-EMAs, which are all trending down. The weekly MACD indicator is trending down below the signal line, while the weekly slow stochastic is still in oversold territory. I remain confident in the view that the “path of least resistance is further downside”.

IG Client Sentiment Indicator: Silver

The IG Client Sentiment Indicator (Retail Investor Positioning Report) shows that 80.04% of retail investors are net long silver, with a ratio of longs to shorts of 4.01:1. Net long positions decreased by 0.62% from yesterday and increased by 0.24% from last week; while net short positions decreased by 8.26% from yesterday and increased by 214.46% from last week.

The IG Client Sentiment indicator often acts as an inverse indicator, and the fact that most retail investors are net long means silver prices may continue to fall.

But combined with current sentiment and recent changes, the IG Client Sentiment indicator has a neutral stance on silver prices. (Translated by Lisa by Christopher Vecchio)

XAG/USD silver price trend analysis: a bigger storm is brewing, short rallies still apply

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