Silver: Downtrend Ongoing?
The silver price reached a multi-year high in late May ($32.5/oz.). Since then, though, price action has been poor. In particular, silver has made lower highs and lower lows in recent months and, as of last week, it broke below its 50 & 90 day moving averages (fig 2).
The key question, therefore, is: What’s next? Is silver about to test its 200-day moving average? Or is recent weakness a buying opportunity?
From a liquidity perspective, risks are skewed to the downside. Historically, silver is largely driven by changes in expectations about Fed policy (amongst other factors). That is, silver performs well when markets price looser Fed policy (and vice versa). In that sense, and like Bitcoin, it’s a classic barometer of liquidity (see fig 1). Currently, though, plenty of Fed loosening has already been priced in (with the rates market anticipating ~220bps of Fed cuts by the end of next year). In the absence of a recession, that’s a significant loosening cycle. The risk, therefore, is that some of that loosening is ‘priced out’, putting downward pressure on the silver price.
Added to that, from a positioning perspective, net LONG positioning in silver is relatively crowded (as we show in fig 3), while measured sentiment readings are reasonably high (i.e. a contrarian sell signal). There’s therefore plenty of fuel for selling/silver price weakness.
Fig 1: Silver price (USD/oz) shown with Bitcoin (USD)
Fig 2: Silver price with 50, 90 & 200 day moving averages (USD/oz)
Fig 3: Silver net speculative LONG positioning vs. silver price (USD/oz)
