Outlook:
Short term
(1-3M):
Up
Medium term 
(3-6M):
Flat
Long term (12M): Up
Resistances:
R1 18.13 40 DMA  
R2 18.61 20 DMA 
R3 19.65 Sep 2019 high
R4 21.13 Jul 2016 high
R5 22.10 Jul 21 high
R6 26.20 Jul 28 high




Support:
S1 22.10 Jul 21 high
S2 20.05 20 DMA
S3 18.91 Jul 17 low
S4 18.86 40 DMA
S5 17.14 200 DMA
S6 16.74 100 DMA




Stochastics:
Bullish
Legend:

BB – Bollinger band
COT – commitment of traders 
DMA - daily moving average
ETF – exchange traded funds
HSL – horizontal support line
SL – support line
MACD – moving average convergence divergence
DTL – downtrend line
UTL – uptrend line
H&S – head and shoulder pattern
RSI – relative strength index




Analysis
  • The spot silver price has extended to a fresh seven-year high above $26 per oz on Tuesday July 28, but the latest up-leg has met with strong overhead selling, judging by the long upper shadow currently on today's daily candlestick.
  • Momentum indicators have rolled lower as a result; the stochastics have crossed lower in high ground and the RSI has rolled lower, which at 83 currently implies prices are somewhat overbought.
  • Further resistance is expected at $26-27 per oz, where a series of chart lows stand from 2011-12. 
  • Downside pressure has been limited so far, with support found below $24 per oz. In view of the underlying macroeconomic environment we expect a "buy-the-dips" sentiment to underpin. 
Macro drivers
Silver continues to outperform gold at present, causing the gold/silver ratio to narrow to 79:1 from over 120:1 in March. With gold prices above $1,900 per oz, silver will continue to benefit from being viewed as a cheaper alternative, which we believe will lead the ratio to narrow further across the short to medium term.

Silver continues to benefit from strong demand from institutional investors seeking a proxy for gold amid falling real interest rates. Exchange-traded fund (ETF) holdings have set a fresh all-time record of 974.2 million oz, up from a low of 683.4 million oz in January.

Net length among Comex speculators increased by 2,886 contracts in the week to July 21 to total 46,755 contracts, which is neutral overall, based on our z-score analysis. Net length peaked at 105,515 contracts in April 2017, at which point silver was testing around $18.65 per oz.

In contrast, demand among retail investors remains somewhat muted. American Eagle coin sales total 1.07 million oz so far in July, according to the US Mint, although sales in the first half of 2020 totaled 12.59 million oz, up by 24.4% year on year. Currently, the Silver Institute forecasts physical investment demand for coins and bars will increase by 7% in 2020. 

Despite the negative economic implications of the coronavirus pandemic, industrial demand for silver could benefit since several governments have announced significant fiscal spending plans with a bias on green investment, which could help with demand from photovoltaic cell production as well as from incentive schemes to boost new energy vehicles (NEVs). 

Mine production has also been significantly affected and disruptions continue to feature. The latest figures from Peru's Ministry of Energy and Mines showed silver production dropped by 66% year on year during May and by 31.6% from January-May 2019.

Conclusion
Silver is consolidating on the back of fresh stimulus hopes in the United States and having run into overhead selling around $26 per oz. But in view of the underlying macroeconomic environment we expect a "buy-the-dips" sentiment to underpin.  


All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.