Is Silver to lead precious metals once the Fed unleashes the ‘liquidity monster’?
The opinion of Silver was fundamentally brightened over the last week of trading, even though the precious metal still finds itself within a consolidation zone between 17.20 and 18.30 USD from a technical perspective.
While some traders might argue that the current price action does not deliver an interesting picture trading-setup-wise, signs intensify that we might be about to see a significant breakout on the upside and the precious metal might be about to push significantly above the 20.00 USD mark.
Was last Wednesday's Fed meeting a signal for more?
One reason for the choppy price action in Silver came from the Non-Farm Payrolls from June 5, which resulted in some, though not sustainable, bullish moves in US yields.
It was released that the US economy unexpectedly added 2.5 million jobs in May, and after the dust had settled, market participants realized that the numbers were likely a 'fake' with the BLS stating that […]there was also a large number of workers who were classified as employed but absent from work.[…] and that […]if the workers who were recorded as employed but absent from work due to "other reasons" (…), the overall unemployment rate would have been about 3 percentage points higher than reported[…]
Things were put in perspective with the Fed the following Wednesday, reinforcing its dovish stance, as the Fed dot plot not only suggests that interest rates will stay at 0% at least till the end of 2022, but also that the Fed will continue to buy USTs and MBS at least at the current pace, pushing 10-year US Treasury yields back into the important region of support around 0.60%.
The thing is: with the Fed not really increasing the liquidity injections, but just keeping the recent pace, one could already see the result of this "taper" with Equities selling aggressively off into the last weekly close.
That in mind leaves us with the expectation that the Fed is sooner, rather than later, forced to massively increase its liquidity injections again – levelling the path in UST yields for a significant break lower and resulting in take-off potential for precious metals and especially Silver.
How to trade Silver in this environment?
Bearing all this in mind let us come to the conclusion that long setups in Silver are to be favoured, technically and short-term as long as we trade above 16.70 USD.
But even if a wave of forced liquidations respectively to meet margin calls sees heavier selling pressure in precious metals like Gold and Silver, a re-test of the region around 15.70 USD seems even more attractive for long-engagements from a risk-reward-perspective and expecting a push back above 20 USD.
A stop in this scenario should be placed at 14.50, delivering a risk-reward of 1.20 to 4.80 or at least 1 to 4.
A direct break on the upside, which finds its 'breakout line' (a line which could act as an accelerator for an attack at the 2019 yearly-highs and break back above 20.00 USD) around 18.75 USD, aiming for a run as high as the 2016 yearly highs around 21.20, probably even higher.
With a stop around 17.20, a risk-reward would lie around 1.55 to 2.45 USD or 1 to 1.6:
Source: Admiral Markets MT5 with MT5-SE Add-on Gold Silver chart (between March 6, 2019, to June 12, 2020). Accessed: June 12, 2020, at 10:00pm GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.
In 2015 the value of Silver fell by 12.8%, in 2016, it increased by 13.0%, in 2017, it increased by 6.4%, in 2018, it fell by 10.0%, in 2019, it increased by 15.7%, meaning that after five years, it was up by 13.5%.
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