Silver (XAG/USD) - Kijun Calling

Sep 7, 2019

These are times of economic uncertainty; Brexit and the Trade War are primary factors but aren't the only ones. It is during these periods of uncertainty in which precious metals often see bullish movement. This is because, in the changing of political landscapes and the manipulations of central banks, these commodities act as a hedge against inflation and a "safe haven" for investors. Currently, we see this uncertainty feed into the current bull run for both XAUUSD (Gold) and XAGUSD (SIlver).

First and foremost, we've bounced off of a support level around the $14.02 level which has been hit multiple times in the past. This includes a bounce from the $14.02 to $21.23 (Early January 2016 to early July 2016) after the bear run from April 2011 to January 2016. This could happen again as price bounced off this support late May 2019 and could play for resistance, but this won't happen for a number of weeks. More recently, we see different technical signals:

In this XAGUSD we look at a variety of technical factors:
a) Current inverted hammer posted on the weekly chart: This was caused by furious bullish movement on the daily in which price moved at an unsustainable rate and angle which forced a retracement. This retracement fell down to the Kijun-Sen (Base Line) which is a support/resistance level but also acts as a measurement for sustainability.
b) Weekly moves away from Kijun-Sen: The same unsustainable movement on the daily chart is encompassed on the weekly, only the minor retracements which helped manage the daily bullish explosion are negligible on weekly candlesticks. However, this has led to a lacking Kijun which has been flattening acting as a pull downwards on price.
c) Oversold Territory: On the daily chart RSI(14) hit highs of 83-84 and on the weekly, it has hit the 78 levels. This moves in confluence with the other listed factors which could lead to a weekly retracement. However, we also see bullish divergence between the peak in 2016, and the current price where the current price is lower than that peak, but RSI is higher than it was. The divergence takes place over the 70 level which means the price will most likely continue upwards once it moves into the neutral level (30-70).

These factors indicate a retracement on the weekly.
The retracement should resume the trend (estimated) at around the 0.5 Fib level between support and resistance which also coincides with the weekly Base Line and ultimately act as minor support in this overall trend. This would be a drop to the $17 price point.

Fundamentally:

It is recommended in the Intelligent Investor to incorporate precious metals into a portfolio even if it is only 2%. Financial advisor William Berstein points out that an allocation like this is too small to hurt overall performance significantly, but when precious metals do well returns are often spectacular and cover losses from securities. This is through equity directly, ETF's , or well-diversified mutual funds. Most investors will avoid invest in the commodity directly because of insurance and storage costs.