Silver is in bearish mode for some time. In this post, we want to examine the silver prices to get an idea about the future direction. First of all the incoming FED tapering is bad business for the silver as you all know. Still, it is unclear that Powell will make a clear statement about tapering or not. But even if he doesn’t commit, there is always a next speech, next FOMC… Perhaps because of that ETFs are in the risk-off mode for the silver just like gold and decreasing positions.
On the other hand, silver probably gets a good boost from industrial production. Unlike gold, nearly half of the global demand for silver comes from various industries like semiconductor production and solar energy panels. Seasonally US industrial production index is near pre-pandemic levels and the trend is looking strong. After the pandemic, climate change awareness increased as Europe and the US are a lot more active about the issue. Green energy adoption has a chance to increase at a faster rate in the near future which is very positive for silver demand.
Gold is staying a lot stronger than silver in the past few months. This brings the gold/silver ratio to near 5-year average and 1000-day auto regression levels. Gold is using the advantage of doubts about recovery, delta wave, record low real yields, and high inflation. But the advantage of gold may come to an end as the ratio returns to the average level.
Another way to look at gold/silver pricing is via Bloomberg’s pair trading tool. This tool calculates the regression between gold and silver then uses the regression-real price residual spread to determine good entry-exit for potential trades. The last trade which is buying gold and selling silver is still ongoing but it is near the profit-taking point, meaning pair trade advantage of gold over silver may be about to end.
If you are not interested in the gold/silver ratio but just silver, post-pandemic silver is moving horizontally between 22 and 30. The price is closer to the lower end of the zone means as long as 22 support holds, the upside chance of silver is higher. For the short-term, silver is moving flat between 23 and 24 since the latest jobs report. For more bullish moves, 24 and 25.05 (recent downtrend channel’s upper line) must be passed.
Now we determine the key levels for silver, let’s look at the market expectations on passing these levels. For that, we will use another Bloomberg tool which looks up options market implied volatility and calculates the probability of reaching certain levels using market expectations. According to the tool, silver stays between 22-25.05 levels in one month with a %55.50 probability. The odds of upside breakout %26.71 and downside breakout %17.79.