Are We Staring Down A Silver Price of $15?

Metals Price ChartSD Exclusive Weekly Outlook: “If anything comes out of left field, a quick repricing in the metals could follow”

The silver price has closed up on 8 of the last 10 days. This comes as not much surprise at is has been a difficult couple of months for the white metal. This coming week, however, will be a test in price action that could have significant consequences. As we have noted on the daily chart before, silver seems to be stuck in downward channel, and while bullish in the long run, we are now at a make-it or break-it point where we will either punch through the channel resistance, or we are on the cusp of another downleg. If the movement reflects the latter, could we be staring down $15? There has been very little riding of either the high or low trendlines of this channel, with the exception of just a few days riding to the high side in early June, so we’ll know soon enough if there is a break-out.

A close on the daily above $16.85 could be the start to a run of higher highs, and technical traders might become bullish at that point, though there is no denying that decisions will need to be sharp with little hesitation once price points are triggered. That is to say, there has been no consolidation on the charts so far throughout 2017. A case could be made for sideways trading in the $16 to $17 range, and as we start the last full trading week of July, sure enough we are right in the middle of that range. We will know soon enough.

Metals Price Chart

(Chart generated using ThinkorSwim)

In addition to a major test to break through the resistance trendline, the continued divergence between gold and silver is worth mentioning. On the chart above, price action in gold is represented by the purple line. Yes, the metals move together, and while trading tightly on the daily in the early part of the year, since early April, a notable divergence has developed. Will silver catch up to gold, or is gold about to see movement to the downside? Swings in price have been significant lately, especially as seen in the Thursday night flash-crash in silver, so it is too early to tell, though the near perfect painting of the chart could cause quite the surprise just when everything seems so complacent.

This week is also FOMC week, though there is no press conference afterwards. The market sure does seem sure that the Fed will hold rates at the current range of 1.00 to 1.25. Note the near perfect certainty as shown by the CME Group.

Inflation Target Chart

If anything comes out of left field, a quick repricing in the metals could follow, especially if there is further downward pressure on the dollar. The dollar is starting the week trying to hold at 94, and it could be an uphill struggle all week long. If the Fed appears bullish, the dollar could consolidate here, but holding steady on rates and further dovishness signaled would continue pressure on the dollar. That might, however, be just the catalyst needed for the metals.

On Friday, we also get the first estimate for second quarter GDP. The Atlanta Fed GDPNow began the second quarter forecast over 4%, though since last week the forecast is calling for 2.5% growth on the quarter.

GDP Now Chart

One trend that seems to be forming is that the Fed seems to be steadily lowering growth expectations. If the Fed comes out dovish on Wednesday, and if 2nd quarter GDP comes in lower than expected, we could be looking to leave the summer doldrums behind us in the metals. By Friday, we will know if the chart was indeed set-up for another down leg as the technicals indicate, or if the fundamental news coming from the Fed is just the catalyst needed to break out to the upside. Look for the movement one way or another because consolidation is hard to come by these days.