Looking at the chart of silver from today's point of view, we
see that at the end of the previous week, the white metal
(similarly to gold) moved higher after Federal Reserve Chair
Nominee Janet Yellen told that monetary stimulus tools shouldn't be
removed too soon. If you recall, several days ago we wrote that
gold could move higher but that that would just be a counter-trend
move and would likely be followed by further declines. On Monday,
two top Fed officials from opposite sides of the policy spectrum,
fueled expectations that the Federal Reserve could taper its
bond-buying program. Their comments pushed the price of silver to
slightly above $20. Although yesterday Bernanke said that the Fed
will maintain ultra-easy monetary policy for as long as needed,
silver extended declines for a second session and hit a fresh
three-month low. This, by itself, is a sign of weakness.
Please note that the price of the white metal is down approximately
33% this year, to some extent on concerns the Fed would begin
cutting back its easy-money policy by trimming its $85 billion
monthly bond-purchasing program. To some extent, because the
reasons didn't have to be fundamental, they could have been
emotional/technical (silver got ahead of itself and needed to
correct before rallying once again). In other words, there could
have been a catalyst that has been undetectable using traditional
fundamental analysis, which is why even long-term investors
shouldn't forget to monitor the charts (or get in touch with
someone who does).
Taking the above into account, today investors are turning their
attention to the minutes of the Fed's October meeting, as well as a
speech by Chairman Ben Bernanke and probably wondering what's next.
What impact could the Fed minutes have on the price of silver?
Let's see what the market thinks.
In today's commentary, we examine long- and short-term charts of
silver to find out what the current outlook for the white metal is.
We will start with the analysis of silver from the long-term
perspective (charts courtesy of
Click to enlarge
At the beginning of the previous week, silver dropped below the
previous October lows (even taking intra-day lows into account).
Moreover, the white metal not only confirmed the breakdown below
the rising support line, it also moved below the 61.8% Fibonacci
retracement level based on the June-August rally ($20.80). This
means that the upward correction might already be over.
On Friday, the breakdown below the 61.8% Fibonacci retracement
level was confirmed as silver closed below this level for the third
consecutive trading day. This made the situation more bearish.
Please note that the RSI indicator is not oversold at this time, so
we might see significant declines in the coming weeks (it's not
that RSI is suggesting that at this time, but it doesn't "say" that
Finally, the support line based on the 2008 and 2013 lows creates
an initial downside target - something that silver is likely to
reach (and pause/bounce) before moving to our final target level
around the $16 level. At this time, this initial target is very
close to $19.50.
This week, we didn't see any improvement. Instead, silver declined
once again, confirming the bearish outlook.
Let's move to the short-term chart to see the very recent price
moves more clearly.
On the above chart, you can see the breakdown below the 61.8%
retracement more clearly.
There are also other interesting things visible on this chart. We
can see that the recent decline in the
iShares Silver Trust ETF
(NYSEARCA:SLV) materialized on significant volume, which suggests
that it was no accident. Interestingly, we saw something similar (a
visible but not huge plunge) in early June, which preceded the real
downswing and investors had several days to prepare.
The second interesting thing that we can see above is the downside
target for the SLV ETF, very close to the $19 level. The target is
created by the red dashed line, which is a parallel line to the
declining resistance line based on the most recent local tops. It
is more or less in tune with the initial target for spot silver at
Summing up, taking into account the above analysis, we can conclude
that the outlook for silver remains bearish and further declines
should not surprise us. We would like to stress that our price
target levels are something that we view as very likely (meaning
that they are very likely to at least stop the decline for a while
when they are reached) at the moment of posting this essay, but
given this month's volatility, it could be the case that these
targets will be adjusted shortly.
For the full version of this essay and more, visit