Whilst intraday gold traders have at least had some price action to trade in the last few weeks, silver by comparison has been positively comatose, trading in very tight ranges, before lurching lower, in a series of well defined platforms. This is all revealed in glorious detail by the volume at price histogram on the left hand side of the silver futures chart, with the upper level denoted with the green dotted line, and the lower level by the blue. This area of price congestion now holds the key to the future for silver in the short to medium term.
From a technical perspective, the floor of support in the $21.50 per ounce level is now critical. If this continues to hold, then we may see a recovery higher to test the $24.50 per ounce level in due course, BUT, any such move will have to be accompanied by strong and rising volume, or any rally will be short lived, given the depth of price congestion now in place. What is also evident from the volume at price bars, is that the balance of price action in this area is selling, suggesting in itself that any move is likely to continue to have a bearish bias. Moving to the daily volume bars, the wide spread down candle on Monday, was associated with above average volume, a confirming signal of weakness, whilst simultaneously, volume under the up candles has been weak and falling. So again, not a positive picture at present for silver.
Moving away from the technical picture, it is interesting to note ( and the same applies to gold and other commodities ) that the recent weakness in the US dollar, has had little impact on silver, which one would normally have expected to gain as a result. This has certainly not been the case and indeed, both gold and silver have fallen in step with the US dollar, a reversal of the normally inverse relationship. This is one of the many correlations which have broken down at present, largely triggered by panic and uncertainty over the FED plans for future bond buying programs. In my recent book I highlight several issues here. First, no-one, least of all the Federal Reserve has any idea as to the longer term effect of such programmes. Second, markets are nervous of the impact on bonds, once the FED withdraws as a buyer from the market. Third, the bond markets and currency markets are now so distorted with currency, both in terms of the dollar, yen and others, that it is almost impossible to forecast what is fair value any longer. The only bond market in the US that could be considered relatively ‘untainted’ are Munibonds, and whilst not in the same class of security as Treasuries, certainly offer an alternative perspective on yields and values in a relatively unpolluted market.
Finally, it is also interesting to note that silver has not benfitted either, from the recent bullish momentum for equities. Under ‘normal’ circumstances ( whatever they may now be ) one might have expected to see silver gain some momentum, as equity markets rise, given that, like copper, it is another bellwether of economic growth, given its classification as an industrial metal. So perhaps silver knows something that we don’t!
For silver traders, it’s a complex and confusing picture at present, and for both intra day and longer term traders, patience continues to be the watchword.
By Anna Coulling