Silver price forecast: September Fed meeting produces Shooting Star

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Outlook on the silver price:

  • The strongest hint from the FOMC so far that a taper announcement will be made soon is causing silver prices to falter.
  • The Fed’s increasing chances of interest rate hikes and firmer interim yields on US government bonds provoked a sharp turnaround in silver prices at an important technical level.
  • Recent mood changessuggest that the silver price has a mixed bias in the short term.

To lose its shine again

The silver price fell to its August low at the beginning of the week, which corresponds to the forecast discussed less than a week ago. Safe havens like silver saw significant bids, supported by falling US Treasury bond yields and fears of financial contagion emanating from China’s Evergrande.

But the shine quickly faded. With the news that China has entered the market to provide liquidity and Evergrande could avoid a default, the need for safe havens has disappeared in the short term. With the September meeting of the Federal Reserve in the rear-view mirror and the FOMC giving its strongest indication yet that a reduction in the announcement will be made at its next meeting, silver prices have been struggling.

If the situation outside of China continues to calm down, while the Fed’s rate hike chances increase and the US Treasury yield curve operates in line with historical precedents from 2014, then the bearish price movement today could be an appetizer for further losses from silver prices the rest of September.

Silver prices and silver volatility ratio back to normal

Both gold and silver are precious metals that are typically attractive as a safe haven in times of uncertainty in the financial markets. While other asset classes don’t like increased volatility (which indicates greater uncertainty around cash flows, dividends, coupon payments, etc. silver Appeal to a safe haven. Decreasing volatility in a period of close correlations suggests that silver prices may continue to move lower.

VXSLV (SILVER VOLATILITY) TECHNICAL ANALYSIS: DAILY PRICE CHART (September 2020 to September 2021) (CHART 1)

silver Volatility (measured by the Cboe’s gold volatility ETF, VXSLV, which is the 1 month implied volatility of Silver- as derived from the SLV Option chain) was trading at 29.96 at the time of this writing. The 5-day correlation between VXSLV and Silver- Prices is +0.95 and is the 20 day correlation +0.88. A week ago, on September 15, the 5-day correlation was +0.11 and the 20-day correlation was +0.84.

TECHNICAL ANALYSIS OF THE SILVER PRICE: DAILY DIAGRAM (February 2020 to September 2021) (DIAGRAM 2)

Silver Price Forecast: September Fed Meeting Produces Shooting Star Levels for XAG / USD

Last week it was stated that “the recent fall in silver prices caused a return to the 38.2% Fibonacci retracement of the 2020 low / 2021 high at 23.0713, which is the potential for the lowest year-end… a return to that August low at 22.1020 seems likely in the short term. ”The silver price briefly touched the August low at the beginning of this week.

In the short term, however, price action around today’s September Fed meeting is more worrying. The rally from the August low caused the price of silver to climb back to the aforementioned 38.2% Fibonacci retracement at 23.0713, only to be rejected. The daily candlestick seems to be a shooting star, a signal to turn back.

As a result of today’s price movement, silver prices are back below their daily 5, 8, 13 and 21 EMA envelope values, which continue to be in a declining sequential order. The daily MACD is still trending down while it is below its signal line, while the Slow Stochastics is staying in the oversold territory on the daily level.

TECHNICAL ANALYSIS OF THE SILVER PRICE: WEEKLY CHART (November 2010 to September 2021) (CHART 3)

Silver Price Forecast: September Fed Meeting Produces Shooting Star Levels for XAG / USD

It was also observed last week that a “failure to return to the ascending triangle this week would increase the likelihood of a deeper setback, possibly up to the 23.6% Fibonacci retracement of the 2011 high / low area at 20,” 6500. A loss of the August low at 22.1020 would increase the chances of a return to the 23.6% Fibonacci retracement. ”After briefly touching the August low earlier this week, the likelihood of a deeper setback for the silver price increases.

IG CLIENT SENTIMENT INDEX: SILVER PRICE FORECAST (September 22, 2021) (DIAGRAM 4)

Silver Price Forecast: September Fed Meeting Produces Shooting Star Levels for XAG / USD

Silver: Retail trader data shows that 92.66% of traders are net long, with the ratio of long to short traders being 12.63 to 1. Number of traders net short is 4.04% higher than yesterday and 10.43% lower than last week.

We typically take the opposite view of sentiment, and the fact that traders are net long suggests silver prices may continue to fall.

The positioning is less net long than yesterday, but more net long since last week. The combination of the current sentiment and recent changes gives us another mixed trend in silver trading.

— Written by Christopher Vecchio, CFA, Senior Strategist

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