Silver 1 OZ 999 NY (XAG=X) Prices Not Following Silver Volatility Lower

Silver 1 OZ 999 NY (XAG=X) Prices Not Following Silver Volatility Lower

After an exceptional run between the end of May and the start of September, silver prices have taken a breather during October. With the US-China trade war on the path towards de-escalation and a Brexit deal coming into focus, market participants have reduced their holdings of safe haven assets lapped up during prior periods of risk aversion. As investors have increased their holdings of equities, they’ve pared back their holdings of sovereign debt. A rebound in sovereign bond yields, particularly in US Treasuries, has reduced the relative appeal of precious metals in recent weeks.

After hitting a yearly low and its lowest level since July 2016 on September 3 at 1.464%, the US Treasury 10-year yield rebounded sharply, hitting a high of 1.907% on September 13. Since then, however, the US Treasury 10-year yield has traded in a sideways pattern, appearing to consolidate into a triangle. The US Treasury 10-year yield was last spotted at 1.754% – essentially unchanged from our last silver price technical forecast update, when it yielded 1.756%.

While other asset classes don’t like increased volatility (signaling greater uncertainty around cash flows, dividends, coupon payments, etc.), precious metals tend to benefit from periods of higher volatility as uncertainty increases gold’s and silver’s safe haven appeal. The opposite can be said during periods of falling volatility: gold and silver prices tend to suffer.

Silver volatility (as measured by the Cboe’s gold volatility ETF, VXSLV, which tracks the 1-month implied volatility of gold as derived from the SLV option chain) has dropped precipitously in recent weeks, losing nearly one-third of its value since early-September. VXSLV is currently trading at 23.81, down from a yearly high of 33.30 in September – its highest level since January 3, 2017. Curiously, silver prices aren’t following silver volatility lower.

The 5-day correlation between VXSLV and silver prices is 0.28 and the 20-day correlation is 0.10 (one month ago, on September 25, the 5-day correlation was 0.95 and the 20-day correlation was 0.66). The current 20-day correlation is at its lowest point since May 22, 2019. It thus still holds that, as noted in our last updated, “that silver prices continue to maintain their elevation despite a plunge in silver volatility bodes well for prospects.”

Even as silver volatility has dropped to multi-week lows, silver prices have been able to trade sideways for most of October. Given that trading is a function of price and time, silver prices may have just breached what could be considered resistance in the descending channel/bull flag pattern in place relative to the yearly highs set in September. But it’s not exactly a convincing break, given the lack of enthusiasm to the topside.

At this point in time, the near-term outlook for silver prices has started to become cautiously bullish. Silver prices are still intertwined in the daily 8-, 13-, and 21-EMA envelope. Daily MACD has flattened out just below the signal line, suggesting bearish momentum has failed to gather traction. Slow Stochastics, however, is in bullish territory (albeit trending lower). If a bull flag breakout is indeed gathering pace, it still holds that a move above the October high at 17.937 is necessary confirmation.

Technical Indicators

Overall, the bias in prices is: Upwards.

The projected upper bound is: 18.51.

The projected lower bound is: 16.61.

The projected closing price is: 17.56.

Candlesticks

A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 5 white candles and 5 black candles. During the past 50 bars, there have been 25 white candles and 25 black candles.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 53.6748. This is not an overbought or oversold reading. The last signal was a buy 15 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 48.85. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 34 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 8. This is not a topping or bottoming area. The last signal was a buy 15 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 2 period(s) ago.

Rex Takasugi – TD Profile

PREC.M.XAG= closed up 0.040 at 17.555. Volume was 8,900% above average (trending) and Bollinger Bands were 60% narrower than normal.

Open     High      Low     Close     Volume___
17.528 17.614 17.457 17.555 29,718
Technical Outlook 
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bullish
Moving Averages: 10-period     50-period     200-period
Close: 17.51 17.78 15.97
Volatility: 14 33 23
Volume: 2,972 594 149

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

PREC.M.XAG= is currently 9.9% above its 200-period moving average and is in an downward trend. Volatility is extremely low when compared to the average volatility over the last 10 periods. There is a good possibility that there will be an increase in volatility along with sharp price fluctuations in the near future. Our volume indicators reflect very strong flows of volume into XAG= (bullish). Our trend forecasting oscillators are currently bearish on XAG= and have had this outlook for the last 19 periods.

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