Silver Doesn’t Care, but You Should

April 30, 2023

NEW YORK (April 30) While calling the top is a process that plays out over time, silver’s momentum has fizzled, and the next major move should be to the downside. To explain, we wrote on Apr. 21:

 

Silver Doesn’t Care, but You Should - Image 1

 

The blue line above shows how silver often peaks in mid-to-late April, with substantial weakness following until the end of June. In a nutshell: May and June are when the white metal has suffered its worst historical performance. 

Also, the first red circle shows how after a small rally near the end of April, it’s largely downhill until July. Consequently, when you combine the seasonality implications with silver’s ominous technical and fundamental outlooks, the bears should feast over the medium term.

On top of that, silver is an attractive pairs trading short.

Please see below:

 

Silver Doesn’t Care, but You Should - Image 2

 

To explain, the red line above tracks the daily copper futures price, while the gray line above tracks the daily silver futures price. If you analyze the relationship, you can see that the pair have largely moved in lockstep since late 2021. And with copper trading near its March lows, silver’s outperformance is likely living on borrowed time.

To further emphasize the point, please see the pair’s relationship on the monthly chart:

 

Silver Doesn’t Care, but You Should - Image 3

 

To explain, the box in the middle shows how when silver decoupled from copper in 2015-2016, the white metal rallied from ~$16.70 to ~$20.35. Yet, five months later, it declined to ~$16 and gave it all back. As such, if you analyze the vertical gray line on the right side of the chart, you can see that the white metal’s strength contrasts copper’s weakness. And with a meaningful rally already in place, silver’s current price looks more like the 2016 peak than the beginning of a new bull market.

So, with silver’s tail risk heavily skewed to the downside, we believe that betting on higher prices offers much more risk than reward.

FXEmpire

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