Logo

Posts

Silver price forecast 8 February 2021

2021-02-08

2021-02-08

Silver bubble burst. Forecast as of 08.02.2021Dmitri Demidenko

The [XAGUSD][1] price fluctuations were breathtaking, but only traders with a cool head managed to benefit from these movements. What’s next? Let us discuss the Forex outlook and make up a trading plan.

Weekly silver fundamental forecast

When is the proper time to make money in the market? During a recession or a global economic recovery? When you walk with the crowd or against it or maybe when trading the news? The answer is simple: when you are sure that speculation is doomed to failure. [A week ago][2], I said that silver has no chance of continuing the rally driven by Reddit traders. Encouraged by GameStop shares’ success, the newbies decided to take on a bigger deal and failed as a result. On the contrary, we made money.

The most rapid daily growth of the precious metal since 2009 did not confuse me. As a result of which the [XAGUSD][1] prices reached the highest level in the last eight years. Reddit opinion shapers spoke of a “short squeeze,” arguing that silver is overvalued as central banks artificially suppress inflation. But what kind of net shorts can you talk about if hedge funds hold longs? Yes, swap dealers are net sellers of precious metals, but in this way, they ensure positions in the physical assets market. Silver is not GameStop shares. It has a different capitalization and a different approach to pricing. As soon as the CME Group increased the size of the margin requirements for futures contracts from $14.5 thousand to $16 thousand, the bubble burst.

The Reddit trader attack is not the only example of manipulation in the silver market. Even bigger traders failed by selling precious metals—for example, the Hunt brothers in 1979. Even though the three sons of the Texas billionaire owned about a third of the reserves in non-government sources, they could not keep prices high for a long time. In 1980, [XAGUSD][1] collapsed as soon as the trading rules were changed.

Thus, the Reddit crowd’s failed speculation allowed us to enter [short trades][3] on growth in the direction above $30 per ounce and earn about 14% in a couple of days. But what to do with silver next? At first glance, the rise in inflationary expectations in the United States is a reason to buy the precious metal.

Dynamics of inflation expectations in the United States

Source: Bloomberg.

The spread between the yield on 10-year US Treasuries and Treasury inflation-protected securities’ (TIPS) rates reached 2.21%, which is the highest level since 2014. Gold and silver are generally seen as the best hedge against inflationary risks, but in January, both precious metals’ positions were weak. The sector leader marked the worst opening of the year in 10 years, and if it had not been for Reddit traders, silver would hardly have appreciated the period in mid-winter.

Weekly [XAGUSD][1] trading plan

Will the [XAGUSD][1] bulls return to the game? I believe the US dollar should suggest the answer. Greenback in January - at the beginning of February, was strong. However, as the European and other economies open up due to the seasonal recession of COVID-19 and the vaccination process, the USD is likely to weaken. If so, it will make sense to buy silver on the breakout of resistance at $27.55-27.6 per ounce. The potential for a rally will be determined by the Fed’s willingness to tolerate high inflation. If consumer prices in the United States fail to accelerate properly, the precious metal will face the same fate as in 2012-2013.

Price chart of XAGUSD in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

Rate this article:

{{value}}

( {{count}} {{title}} )

  1. my.liteforex.com/trading/chart?symbol=XAGUSD&returnUrl=true
  2. www.liteforex.com/blog/analysts-opinions/silver-will-feed-the-wolves-of-wall-street-forecast-as-of-01022021/
  3. www.liteforex.com/blog/analysts-opinions/silver-will-feed-the-wolves-of-wall-street-forecast-as-of-01022021/