Silver – Summer Doldrums With Final Sell-off, Then Summer Rally

Silver managed to gain 10% from its last low on May 13th at 20.46 USD as initially expected. Despite this recent recovery high at 22.52 USD, the situation remains tense and corrective. E.g. the recovery could not even reach the minimum target at 22.64 USD and silver prices, currently trading at 21.39 USD, are not far away from the low of the year. Not much is missing, and the broad support zone of the last two years above 20.50 USD would finally be broken. Silver – Summer doldrums with final sell-off, then summer rally.

In view of the toxic cocktail of interest rate hikes, liquidity shortages as well as excess inventories and a potential collapse in demand due to the strong correction in financial markets, precious metals initially may find it difficult to completely escape the current selling pressure. In the best case, however, gold and silver will begin to price in a policy change by the U.S. Federal Reserve (Fed) at an early stage. Presumably, however, it will likely take more pain and significantly lower stock markets first. Only then will the Fed return to its easy money policy. Already, the stress in the financial system is higher than it has been at any point in time since 2008.

Silver price in US-Dollar, daily chart: Clearly below the falling 200-day line

Silver in US-Dollar, daily chart as of June 27th, 2022. ©Midas Touch Consulting

On the daily chart, silver is not getting back on its feet despite the interim recovery. As before, the price action takes place clearly below the falling 200-day moving average line (23.32 USD). Thus, the situation remains corrective and bearish. Consequently, the bears likely will try to push silver prices back towards the lows of the year. It currently only takes 1 USD to continue the series of lower lows again. The daily stochastic has reached its oversold zone, but so far the momentum oscillator does not yet provide any signs of a trend reversal. In the environment of a strongly fallen copper price as well as the collapsed stock markets, we must therefore assume that new lows in silver are just a question of time.

Silver seasonality as of June 24th, 2022. ©Sentimentrader and Gold.de

Nevertheless, there is a good chance in the coming weeks that silver will find its classic bottom in early summer and then start its typical summer rally into fall. Statistically, the precious metals find an early summer bottom between mid-June and mid-August, followed by three strong months. For silver, this seasonal pattern is not quite as pronounced as for gold, but a rally in the gold market is likely to drag silver along with it.

Silver CoT Report as of June 24th, 2022. ©Sentimentrader and Gold.de

The assumption of a summer rally is also supported by the current CoT Report. Accordingly, commercial traders have reduced their cumulative net short position to 27,250 contracts. At the very least, a complete crash in silver can probably be ruled out from this perspective. A few more tough weeks with falling or sideways meandering prices should, however, still be expected in any case.

Conclusion

In summary, the technical setup points to a rather muted price action and a continuation of the correction in the short term. The second leg of the correction, which has been underway since March, should therefore be expected somewhere between approx. 18.50 and 20.50 USD. From around mid-July to mid-August, however, the start of a summer rally in the silver market is likely. 

Whether this will fizzle out like a lukewarm breeze in the difficult macro environment until the fall or could possibly have the makings of a new bull market leg in the direction of 30 USD and higher remains to be seen, However, in the medium and especially in the long term, silver “only” needs to clear the 30 USD mark to unleash a run towards the all-time high around 50 USD. Until then, however, silverbugs will have to be patient.

Silver in Euro – New buy limit at 19.50 EUR

The seasonal pattern for silver typically delivers an important low somewhere between June and August. Hence, a buy limit for silver finally makes sense again. With a bit of luck, silver will come back towards at least the 20.50 USD level or somewhat lower. Due to the correcting US-Dollar, we could see silver slightly below 20 EUR. We therefore place a new buy limit at 20.20 EUR, to make sure we can add to our physical silver holdings during the summer lows.

Our buy limit at 20.20 EUR, mentioned on May 29th, was filled on June 1st. Since the correction in the silver market still does not seem to be over and, in addition, the seasonal pattern typically provides an important low between June and August, another buy limit makes sense. Hence, we reduce our next buy limit slightly to 19.50 EUR. But those who want to increase their physical silver and gold holdings (recommendation min. 5% and max. 25% of total assets) do find good buying opportunities at current prices already.

Analysis initially published on June 24th, 2022, by www.gold.de. Translated into English and partially updated on June 27th, 2022.

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Disclosure: This article and the content are for informational purposes only and do not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision. The views, thoughts, and opinions expressed here are the author’s alone. They do not necessarily reflect or represent the views and opinions of Midas Touch Consulting.

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