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Daily Reports 17

Silver update

By David Morrison  |  08/02/2019 15:16

Gold and silver rallied on Friday on safe-haven demand as global stock indices declined. But the silver chart shows up a negative divergence which is worth keeping an eye on

Like gold, silver began February on the back-foot giving up a proportion of gains made at the end of January. However, it has put in a decent bounce over the last two sessions, finding some modest support around $15.65. This has seen the 50-day exponential moving average (EMA) cross back above the 200-day EMA for the first time since September 2017. The 50-day crossed above the 100 this time last month. All this points to a possible change in the long-term trend from bearish to bullish. This would be confirmed once the 100-day EMA also crosses and holds above the 200.

Safe-haven demand

Interest has grown in the two precious metals as the sell-off in global equity markets accelerated in the third quarter of last year. It is a testament to both gold and silver’s resilience, and indicative of continued investor concerns, that they have held their gains despite a sharp snap-back in equity prices over the last six weeks. Over the last two days both metals have rallied as the major stock indices, particularly those in the US, have stumbled as they encounter resistance. It is intriguing that these gains have materialised despite a strengthening US dollar. All this suggests that investors aren’t completely convinced that the all-clear has been sounded over global equity markets, despite the strength of the rally since the end of December.
Negative divergence
However, it’s worth pointing out that there’s a technical red flag where silver is concerned. As can be seen on the chart, so far this year silver has punched out two higher highs before meeting resistance around $16.16/20. At the same time, the overbought Relative Strength Index (RSI) has made a lower high, so showing negative divergence. This is an indication that the upside price action in silver is losing momentum. And while not shown on this chart (as it gets too crowded) this has come on declining volume and negative divergence on the stochastic indicator as well. So, while silver may have room to rise further, it could be wise to wait and see if it pulls back first.
Silver chart

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