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The Surge on the Dollar Means Headwinds for Silver

Silver ETFs
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EDITOR NOTE: The silver market is stuck in a range after displaying signs of headwinds for silver, reflecting not only uncertainties in the economy but also uncertainty among mainstream investors who don’t know whether to hedge the markets and the dollar or whether to ride this Fed-fueled bull to the end. In other words, should they take the Fed trade or the inflation trade? These matters are more an issue of speculation than fundamental smarts. Silver is both a monetary and industrial metal. It’s a way of hedging the negative conditions brought on by monetary and fiscal stimulus while at the same time benefiting in the direction of the Biden administration’s fiscal spending (green energy agenda). In short, it can shine in both worlds, night and day. And considering the current shortage in silver supply, the pullback in price provides the most favorable opportunities for any investor who wants to purchase the physical metal.

Silver prices edged lower on Friday, declining by 0.25%, but settled up about 0.45% for the week. The surge in the dollar on Friday generated headwinds for silver and the entire precious metals complex. With yields not impressed with higher inflation levels, lower yields are likely to weigh on the dollar and eventually buoying silver prices. The daily charts show that prices are consolidating between a tight range. Traders await the next commitment of trader’s report, but open interest is still likely to show a significant number of long contracts held in the managed money category. There is large option open interest (which is the number of open option contracts, at the $26 strike options that settle in one week and the $26 and $27 strike that mature in 2-weeks. If the markets can push the price another 4% it should begin to see additional short-covering.

Technical Analysis

The weekly chart shows that prices moved higher and continued a long-term bull flag pattern that is a pause that eventually refreshes higher. Resistance is seen near a downward sloping trend line on the weekly chart at $28.45. Support is seen near the 10-week moving average at 26.92. Short-term momentum is positive as the fast stochastic made a crossover buy signal. The caveat is that the fast stochastic is printing a reading of 83, above the overbought trigger level of 80, which could foreshadow a correction.


Medium-term momentum is also positive as the MACD (moving average convergence divergence) index recently generated a crossover buy signal. This occurs as the MACD line (the 12-week moving average minus the 26-week moving average) crosses above the MACD signal line (the 9-week moving average of the MACD line. The MACD histogram is printing in positive territory with an upward sloping trajectory which points to higher prices.

This article was originally posted on FX Empire

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