Soft (Metals) Landing: Silver Likely Has More Room to Fall
Silver has been trading inside of a falling wedge since April 2022, battered by an increasingly-hawkish fed. Despite a formidable collapse in the biggest inflation driver, oil, CPI and PPI reports are shaping up to be a continuation of the trend; worsening inflation. With any weakness in oil likely to be temporary given our macro environment, it's easy to speculate that inflation-related surprises will likely be to the upside, adding even more pressure to a committed fed.
Because of this, I'm expecting the downtrend in metals to remain intact as we march towards future FOMC rate decisions. Inflation and unemployment currently stand to embolden the fed to raise on the high end of projections until there is a meaningful downtick in inflation, or a material disaster economically. The latter of which can be devastating for silver, given its industrial role. Lastly, specifically for silver, there are also gaps ahead of us that will likely want closed.
Gaps are outlined on this chart going back to 2020 bottoms, and FOMC meeting dates are represented by vertical lines.
My suspicions/beliefs/biases:
TLDR; Short/medium term bearish while the wedge is intact, eternally bullish the moment a breakout to the upside or a fed pivot occurs.
Because of this, I'm expecting the downtrend in metals to remain intact as we march towards future FOMC rate decisions. Inflation and unemployment currently stand to embolden the fed to raise on the high end of projections until there is a meaningful downtick in inflation, or a material disaster economically. The latter of which can be devastating for silver, given its industrial role. Lastly, specifically for silver, there are also gaps ahead of us that will likely want closed.
Gaps are outlined on this chart going back to 2020 bottoms, and FOMC meeting dates are represented by vertical lines.
My suspicions/beliefs/biases:
- Silver is setting up one of the best buying opportunities in recent memory, and market forces will continue to drive deep value deeper for some time.
- When the trend reverses, it will reverse for decades, and maybe longer.
- Renewable energy sector, capital preservation strategies, fiat collapse, and relative value against literally everything will eventually snap silver's 11 year losing streak.
- There will be another touch on the bottom trendline of the falling wedge, likely at or near the September FOMC meeting.
- Silver should not break out of the wedge to the downside, but if it does, moves to gap lines will be violent.
- We are almost certain to test gap line 1, and it is fairly likely that we will test gap line 2.
- Once gap lines take support away from the descending wedge bottom line, reversal has likely begun.
- Very unlikely that silver goes far beneath $14.70/oz.
- Closing gap 2 would almost certainly mark the end of a front-loaded rate hike cycle, and almost lend itself to capitulatory selling-off, marking what I see to be a likely bottom moving forward.
- Beneath gap 2, something terrible has probably happened, hug your loved ones and pray.
TLDR; Short/medium term bearish while the wedge is intact, eternally bullish the moment a breakout to the upside or a fed pivot occurs.
Comment:
Silver looks set to break out of this wedge on today's close with incredible momentum, but I still find myself skeptical that the bottom is in. A weekly close in this range will add to confidence that a reversal is indeed in progress.
A couple notes. Several online communities had a 'silver raid' planned for October 1st, where members pledged to buy physical silver en masse. Whether or not this had any material impact on today's action is unclear, as a falling dollar and broad strength in commodities (and everything else, for that matter) was likely responsible for the strength.
For sidelined cash looking to buy silver on this breakout, I wouldn't do it today. It is certainly possible that this breakout could be sell-side exhaustion (partially fueled by the 'raid'), with a continuation of the trend to follow. DXY's performance will be one to watch as well.
Congrats to silver bulls, today is certainly encouraging, whether or not the breakout sticks. Proceed with caution and discipline.
A couple notes. Several online communities had a 'silver raid' planned for October 1st, where members pledged to buy physical silver en masse. Whether or not this had any material impact on today's action is unclear, as a falling dollar and broad strength in commodities (and everything else, for that matter) was likely responsible for the strength.
For sidelined cash looking to buy silver on this breakout, I wouldn't do it today. It is certainly possible that this breakout could be sell-side exhaustion (partially fueled by the 'raid'), with a continuation of the trend to follow. DXY's performance will be one to watch as well.
Congrats to silver bulls, today is certainly encouraging, whether or not the breakout sticks. Proceed with caution and discipline.
Comment:
Silver looks set to re-enter the wedge following today's close. If it seems too good to be true, it often is; particularly in this market.
Short setup (to the bottom line of the wedge) is in place with the proper stops, as a feds have reiterated rate hikes, world economies be damned.
Short setup (to the bottom line of the wedge) is in place with the proper stops, as a feds have reiterated rate hikes, world economies be damned.
Trade closed: target reached
On the flip side of the coin, I am sensing an increasingly militant and committed physical metals market from the retailers on various social media platforms. To add to this, I've noticed my bullion dealers have very limited availability of items I have been able to easily get in the past.
If silver does indeed break out of the wedge on this leg, I'd remain a bit skeptical for a period, as the broad market is currently a false-breakout machine. Recession is almost the baseline now, and silver would suffer headwinds from an industrial perspective, regardless of its relative value.