Silver Price Awaits Impact on Precious Metals from Yellen Comments Tomorrow

As of 3:30 p.m. EST, Silver prices (for December delivery) traded down -$0.041 (-0.22%) lower to $18.515/oz., with today’s trading range between $18.440 and $18.620. The 52-week range for the contract sits at $13.780 – $21.225.

Markets around the world were on their heels today, one day before Federal Reserve (Fed.) Chair Janet Yellen gives a speech at Jackson Hole. Some investors are assuming that the Fed. could hike rates by 25 basis-points at one of the remaining meetings this year.

Keep in mind that with elections in a couple months, it may be irresponsible for the Fed. to intervene in the marketplace during that month. According to my reports all year long, I find that the U.S. economy is no shape to withstand any hikes this year.

I should also note that even if Yellen knew that she had absolutely no expectation what-so-ever to hike rates by the end of 2016, that she would probably still try to sway market expectations with hawkish comments.

After digging into the past few annual symposiums at Jackson Hole (and markets’ performance thereafter) I have found one particular trend that traders may find interesting: When looking at the weekly performance of the S&P 500 immediately following Jackson Hole, the index rose. The exception was in 2013 and 2015 but in those years, the Fed. Chair (Bernanke and Yellen respectively) didn’t speak at all.

The pattern would suggest a higher probability that, once again, Yellen will reassure markets that could be looking for an excuse to increase buying pressure. That could boost equities within the “risk-on” environment, while simultaneously hurting “safe-haven” assets such as silver and gold.

Silver - Recap and Outlook for Aug 25 2016 - ONE

The 3-day chart (above) shows the bid of silver (spot) prices sitting at $18.860 at 3:30 p.m. EST. You can see that the price floor around $18.800 remained in place until silver finally crashed through those floorboards to the next level below.

That new level of support is the $18.500, which I mentioned within the past week that “I would be surprised if we didn’t decline to.”

Those traders that kept buying at $18.800 to sell for a small profit higher may have been stopped-out yesterday at $18.750. If that is the case, you saved yourselves a $0.250 loss and can now repurchase (spot) silver near the much stronger support level of $18.500.

But, as I previously mentioned above, be careful about markets getting higher on another dose of optimism from Yellen’s statements tomorrow (which could limit silver’s ability to rise or even cause it to drop much lower).

With the small chance that Yellen says something wrong (or too many negative comments) causing markets not to believe in, or share, her optimism then that could send silver much higher. Either way, expect a sizable move tomorrow. Whichever one you pick, make sure to use a stop-loss.

Silver - Recap and Outlook for Aug 25 2016 - TWO

The current gold/silver ratio sits at 71.607 (based on the December contracts). The ratio, when looking at their spot prices, sits at 71.40 (up from 70.87 on Monday).

Gold (for December delivery) fell -$3.90 (-0.29%) lower to $1,325.80/oz. by 3:30 p.m. EST. Today, it traded between $1,321.00 and $1,330.20, while the 52-week range presently sits at $1,052.60 and $1,384.40. Gold has now fallen in 3 out of the past 4 trading sessions, while silver been falling steadily since the middle of August.

On the 2-day chart (above) we can see that gold and silver started off trading relatively in tandem but silver ended up making sharper moves to the downside. The lower indicators provide some evidence that silver prices could see a micro gain in the very near term.

The blue trendline, based upon the MACD troughs, gives us a clue that the Dec. silver price could rise easily to as high as $18.875 without much difficulty.

Silver - Recap and Outlook for Aug 25 2016 - THREE

On the two-day chart (above) we can see that the Dec. silver price (candles) has underperformed both the Dec. gold price and the Oct. WTI oil price in the past couple days. In percentage terms, silver is down -2.44%, while gold hasn’t even dropped -1.5% and oil has erased almost all of its 2-day losses.

The take-away from this is that Silver, being the underdog, has the most potential of rebounding compared to the other two assets, which are also denominated in the same U.S. dollars. This is not guaranteed, because a fall in both gold and oil tomorrow would put further selling pressure on silver also (which happens to often see sharper declines and gains than gold does).

Silver - Recap and Outlook for Aug 25 2016 - FOUR

On the 1-month chart of the December silver contract (above), we can see that, as my short-term bearish prediction becomes increasingly more accurate, the upside potential is also increasing.

Now that we have hit my first major down-side target, I expect some buyers to step in, which could pause the decline.

The bulls have a chance of pushing the grey metal back up to the red trendline (around $19.700) or even back up to the blue trendline (which is based upon the MACD peaks) just below $20.00.

Should $18.500 fail to hold then all bets are off and we could resume by prediction for the index to easily fall to between $16.000/oz and $18.000/oz.

The Stochastics looks over-sold at this point and should reverse higher. The Relative Strength Index is now leaving neutral territory as it pushes below 40. The lower it goes, the more likely that it will reverse higher again.

This chart has expanded the fluctuations of gold to present the size of its fluctuations compared to silver’s. If we took an actual look at silver’s performance in the past month, we would find that it is still down -5.37%, while, at the same time, gold is just now falling to break-even (0.0%) for the month.

Hint: Brent oil’s 50-day moving-average looks to be just about to cross below its 200-day moving average. This so-called “death cross” should it materialize, would be bearish for silver and the entire commodities complex as a whole.

Robert Patyk has 15 years’ experience trading stocks, options, commodities, futures options, & currencies. At age 17 he won first place in an international stock trading competition. Robert predicted the market crash of 2008 two years early. He is a contrarian, top-down macro trader achieving high returns by studying geo-politics, fundamentals, and technical indicators.