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Could Silver take over positively if the Fed announces liquidity?




June 17, 2020, 10:30

The opinion of Silver was fundamentally brightened over the last week of trading, even though the precious metal still finds itself within a consolidation zone between 17.20 and 18.30 USD from a technical perspective.

While some traders might argue that the current price action does not deliver an interesting picture trading-setup-wise, signs intensify that we might be about to see a significant breakout on the upside and the precious metal might be about to push significantly above the 20.00 USD mark.

Was last Wednesday’s Fed meeting a signal for more?

One reason for the choppy price action in Silver came from the Non-Farm Payrolls from June 5, which resulted in some, though not sustainable, bullish moves in US yields.

It was released that the US economy unexpectedly added 2.5 million jobs in May, and after the dust had settled, market participants realized that the numbers were likely a ‘fake’ with the BLS stating that […]there was also a large number of workers who were classified as employed but absent from work.[…] and that […]if the workers who were recorded as employed but absent from work due to “other reasons” (…), the overall unemployment rate would have been about 3 percentage points higher than reported[…]

Things were put in perspective with the Fed the following Wednesday, reinforcing its dovish stance, as the Fed dot plot not only suggests that interest rates will stay at 0% at least till the end of 2022, but also that the Fed will continue to buy USTs and MBS at least at the current pace, pushing 10-year US Treasury yields back into the important region of support around 0.60%.

The thing is: with the Fed not really increasing the liquidity injections, but just keeping the recent pace, one could already see the result of this “taper” with Equities selling aggressively off into the last weekly close.

That in mind leaves us with the expectation that the Fed is sooner, rather than later, forced to massively increase its liquidity injections again – leveling the path in UST yields for a significant break lower and resulting in take-off potential for precious metals and especially Silver.

How to trade Silver in this environment?

Bearing all this in mind let us conclude that long setups in Silver are to be favored, technically, and short-term as long as we trade above 16.70 USD.

But even if a wave of forced liquidations respectively to meet margin calls sees heavier selling pressure in precious metals like Gold and Silver, a re-test of the region around 15.70 USD seems even more attractive for long-engagements from a risk-reward-perspective and expecting a push back above 20 USD.

A stop in this scenario should be placed at 14.50, delivering a risk-reward of 1.20 to 4.80 or at least 1 to 4.

A direct break on the upside, which finds its ‘breakout line’ (a line which could act as an accelerator for an attack at the 2019 yearly-highs and break back above 20.00 USD) around 18.75 USD, aiming for a run as high as the 2016 yearly highs around 21.20, probably even higher.

With a stop around 17.20, a risk-reward would lie around 1.55 to 2.45 USD or 1 to 1.6:

Source: Admiral Markets MT5 with MT5-SE Add-on Gold Silver chart (between March 6, 2019, to June 12, 2020). Accessed: June 12, 2020, at 10:00 pm GMT – Please note: Past performance is not a reliable indicator of future results or future performance.

In 2015 the value of Silver fell by 12.8%, in 2016, it increased by 13.0%, in 2017, it increased by 6.4%, in 2018, it fell by 10.0%, in 2019, it increased by 15.7%, meaning that after five years, it was up by 13.5%.

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Disclaimer: The given data provides additional information regarding all analyses, estimates, prognosis, forecasts, or other similar assessments or information (hereinafter “Analysis”) published on the website of Admiral Markets. Before making any investment decisions please pay close attention to the following:

  1. This is a marketing communication. The analysis is published for informative purposes only and is in no way to be construed as investment advice or recommendation. It has not been prepared by legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.
  2. Any investment decision is made by each client alone whereas Admiral Markets shall not be responsible for any loss or damage arising from any such decision, whether or not based on the Analysis.
  3. Each of the Analyses is prepared by an independent analyst (Jens Klatt, Professional Trader and Analyst, hereinafter “Author”) based on the Author’s estimations.
  4. To ensure that the interests of the clients would be protected and objectivity of the Analysis would not be damaged Admiral Markets has established relevant internal procedures for the prevention and management of conflicts of interest.
  5. Whilst every reasonable effort is taken to ensure that all sources of the Analysis are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admiral Markets does not guarantee the accuracy or completeness of any information contained within the Analysis. The presented figures refer to any past performance is not a reliable indicator of future results.
  6. The contents of the Analysis should not be construed as an express or implied promise, guarantee or implication by Admiral Markets that the client shall profit from the strategies herein or that losses in connection therewith mayor shall be limited.
  7. Any kind of previous or modeled performance of financial instruments indicated within the Publication should not be construed as an express or implied promise, guarantee or implication by Admiral Markets for any future performance. The value of the financial instrument may both increase and decrease and the preservation of the asset value is not guaranteed.
  8. The projections included in the Analysis may be subject to additional fees, taxes, or other charges, depending on the subject of the Publication. The price list applicable to the services provided by Admiral Markets is publicly available from the website of Admiral Markets.

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