Silver Price Falls To Oversold Territory
London (Nov 16) The price of silver hit a high in early September when the precious metal traded to a peak at 19.54 on the continuous futures contract and $19.75 on December futures. Since then, the price of silver corrected. Last week, silver fell to another new short-term low at $16.615 per ounce.
So far, in 2019, silver has traded in a range between $14.245 and $19.54 on the nearby COMEX futures contract. At around $16.90 at the end of last week, the price of the metal was at the midpoint of the year. Silver experienced a 50% retracement of the move higher during the current price correction.
On the short-term chart, silver has declined into oversold territory. On the long-term quarterly chart, the price action remains bullish. With silver trading under $17 per ounce, the odds that the precious metal is near a short-term bottom are rising. The most direct route for a risk or investment position in the silver market is via the physical bars and coins available through dealers around the world. The COMEX division of the CME provides highly liquid futures and futures options contracts on the precious metal. For those who do not wish to hold actual silver or venture into the futures arena, the Velocity Shares 3X Long Silver ETN product (USLV) and its bearish counterpart (DSLV) allow market participants to take leveraged risk positions in the silver market via standard equity accounts.
Silver is more volatile than gold
Silver is a volatile metal that attracts lots of speculative interest when the price begins to trend. Silver often moves far more than gold on a percentage basis
The monthly chart highlights that monthly historical volatility in the gold futures market stood at 14.13% as of the end of last week.
The monthly price variance metric stood at 22.29% in the silver futures market. Silver offers investors and speculators more opportunity than gold when it comes to short, medium, and long-term risk positions on the long and the short side of the market.
Silver underperformed the yellow metal during the June through September rally
In June 2019, gold broke out above its technical resistance level at the July 2016 post-Brexit high of $1377.50 per ounce. The monthly chart shows that the price of the yellow metal rose to its highest price since 2013, when it traded to $1559.80 in early September. Gold moved from its low for this year at $1266 to the September peak or 23.2%.
Meanwhile, silver never challenged its July 2016 peak at $21.095 per ounce. However, the nearby silver futures market moved from its 2019 low at $14.245 to a peak at $19.54, or 37.2% over the same period when gold took off on the upside. While silver did not experience the same technical breakout as gold, it still delivered a more substantial percentage gain over the period.
During the most recent correction from the high, gold fell to a low at $1446.20 on November 12, a decline of 7.3% from the high. At the same time, silver fell to a low at $16.615 on the same day or 15% above its early September peak.
Still looking bullish on the long-term chart
The midpoint in the silver futures market so far in 2019 stands at $16.8925 per ounce. The price was marginally above that level at the end of last week. Meanwhile, the long-term picture for the silver market continues to look constructive at just below the $17 per ounce level.
The quarterly chart illustrates that the price momentum indicator crossed higher in April and is approaching neutral territory. At 50.9, relative strength displays a neutral condition. Even though silver delivered wider percentage price moves on the up and downside in 2019, quarterly historical volatility at under 11% is at the lowest level of 2019 and since way back in 2002.
The total number of open long and short positions stood at the 221,250-contract level last week. While the metric is not far below its all-time peak, which was at just under 243,500 contracts, the current level does not indicate that the market is too long or too short at the current price level.
The long-term technical picture of the silver market tells us that the current period of price consolidation is healthy and could lead to further gains.
Expect a wide trading range in the silver futures arena
Silver followed gold to the upside from June through September. Even though it did not break out from a long-term technical perspective, it continued to display a wider price variance than the gold market.
Silver will be watching the yellow metal over the coming weeks and months. If gold moves to a higher high and challenges the $1600 level, expect silver to also move to a new high. The critical technical level in the silver market on the upside stands at the July 2016 high at just over $21 per ounce. A break above that level could send a herd of buyers into the silver market. In 1980, silver hit its all-time peak at over $50 per ounce. In 2011, the price fell just short of that level when it rose to $49.82 per ounce.
The trend in global interest rates continues to favor precious metals. The US Fed is unlikely to cut rates further this year. Chairman Powell indicated that a rise in the Fed Funds rate is not on the horizon. At 1.50%-1.75%, the short-term rate in the US is close to a historic low. At negative 50 basis points in Europe, the deposit rate is at the lowest level in history. Precious metals compete with other assets. When rates are rising, fixed-income securities become more attractive. In a falling rate environment, precious metals tend to shine.
At the same time, there are more than a few issues facing the world that will continue to ignite periods of fear and uncertainty. Gold and silver both tend to benefit when market participants seek shelter in assets that typically hold their value.
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