Analysis
- Silver is attempting to hold support at the July 8 low of $19.22 after falling sharply yesterday.
- The lower shadow so far today implies dip-buying interest.
- The question is whether silver can reclaim the 20 DMA ($19.53).
- The stochastic fast line is attempting to turn higher. The RSI has eased to 54 from an overbought 86 at the start of the month.
- Support below is seen at $18 while the 40 DMA stands at $18.20.
- Resistance is seen at the July 4 high ($21.13) and above is now seen at $21.60, the July 2014 high.
Other factors
South32 recored silver production of 5.037 million ounces in the April-June period from the Cannington silver mine – the world’s largest. Production in the year ending June 30 totalled 21.39 million ounces, down one percent on the year due to lower ore-grades and below the 21.6-million-ounces production guidance. It expects output to slow to 19.5 million ounces in its 2017 financial year, according to a recent presentation.
Investment demand has proved more mixed recently:
- ETF holdings have increased to a fresh 2016 and all-time high of 651.47 million ounces following small inflows into the MSL fund.
- American Eagle coin sales continue to moderate and have slowed to 1.8-million-ounce pace so far in July from 2.83 million ounces in June from 4.4 million ounces in May. Still, sales totalled 26.3 million ounces in the first half of the year, up 20 percent on the year-ago total.
- Silver coin/bar sales by the Perth Mint in the first five months of the year were up 166 percent on January-May 2015.
The AU/AG ratio has fallen to 64:1, its lowest since August 2014, which reflects greater strength relative to gold. But given its tendency to overshoot at the bottoms and tops of ranges, we wonder whether this is a warning that gold may be due to correct lower.
Net length among Comex speculators increased for a fifth straight week to a fresh all-time high as of July 12. It now stands at 87,652 contracts, up 1,898 contracts or two percent from the previous week – long accumulation was partly offset by a re-engagement of shorts. The silver price rose edged 0.71 percent higher over the period covered by the data. As long as risk appetite continues to strengthen, we would not be surprised if growth in silver’s net spec length outpaces that of gold. But a reversal in sentiment could occur this summer, perhaps because of the Fed. The strength in US equities may prompt the Fed to recalibrate market expectations about the path of rates. A sell-off in risky assets could follow, resulting in speculative selling in silver.
Silver supply is also likely to be tightening – the production cuts and closures at zinc and lead mines will also have hit by-product output of silver. The latest INEGI figures show mine production in Mexico contracted by 2.8 percent year-on-year in April, with output falling 5.2 percent in the first four months.
Conclusion
Silver is trying to form a price base at $19.22 – dips have drawn buying interest. Whether support is sufficient remains to be seen and, given the still very elevated speculative length, we feel there is still room for silver to correct and would look for stronger support around $18.82/18.00.
