Silver is Searching for a Sweet Spot to Pivot – Technical Analysis

Silver is Searching for a Sweet Spot to Pivot – Technical Analysis by Trader Stef

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If you missed my recent analyses on the price advance of silver, I suggest you review “Silver Still Needs a Few Dollars More for a Breakout,” published on Aug. 26, and “Savvies Were Aware of the Near-Term Risk for a Pullback in Gold and Silver,” published on Sep. 7.

The seasonality pattern for gold has been spot on and silver has been off by a week or so.

Silver 20yr Seasonality Sep 30 2019

Here is the silver spot weekly chart as of Monday Sep. 30 at 5pm EDT, overlaid with the CFTC’s Commitments of Traders (CoT) report data from Sep. 24 released on Set. 27. The CoT is always delayed by one week. The Oct. 1 CoT data covering the previous week’s price action will be released on Friday, Oct. 4. To view a larger version of any chart, right-click on it and choose your “view image” option.

The purpose of the overlay is to help identify the near-term price trend based on positioning by the commercials (bullion banks) and large specs (hedge funds). Almost without exception, the commercial traders build short positions during a rising price trend and large specs add long positions to capture the momo play. When the price is approaching an inflection point, their positioning begins to flip. Zoom in to the bottom of the chart and note the Sep. 24 data points marked with red dots. The large specs unloaded a chunk of theirs longs to where their bullish stance fell by 3%, whereas the commercials remained steady. That tells you where the majority of the current price decline is originating from, as large specs have gotten nervous about the near-term technical outlook. This Friday’s CoT data release will add more color to the dynamics taking place. I included the 50 & 200 Exponential Moving Averages (EMA) for reference.

Notice the flip in long vs. short positioning by the commercials and large specs, indicated by horizontal lines without arrows on the lower half of the chart and briefly in the center. It is a rare occurrence that commercials go net long with the large specs net short. That scenario can signal a significant reversal in the price trend to the upside, and the silver price has had a significant rally. The same scenario played out with gold in 4Q18 and is referenced in “Price Derangement Syndrome Fuels Gold Pundit Insanity – Part 2, published on Mar. 12, 2019.

An article published on Forbes today has taken note of the lack of retail level investor participation in the gold rally, as it is primarily institutional smart money pulling the strings during this primary bull phase, and accumulating for the restart of the secular bull. Silver appears to be in the same boat.

As silver investment strengthens, will it out-perform gold?… “A clear negative for silver investment is relatively weak coin and bar demand.” – CME, Sep. 3

UBS Doubles Down On Gold… “‘An environment of negative and lower-for-longer real rates, slowing growth with downside risks, and elevated uncertainty strengthens the case for holding strategic gold allocations’… The other bullish blessing is that most of the investor love for the metal has not come from individual investors. Individuals are well-known for buying and selling assets of any kind at precisely the wrong time. That means that their relative absence from gold investing is a good thing for investors who want to see the price of bullion rally.” – Forbes, Sep. 30

With those quotes in mind, consider the data on silver bullion coin sales at the U.S. Mint. Here are the gold and silver sales numbers in a side-by-side comparison that includes 2018 and 2019 as of today.

Gold and Silver Coin Sales at US Mint 2018 - Sep. 2019

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