01-09-2019: March Silver: Price Anticipated to "Stagnate" Yet Rise Slightly

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Introduction
Intermarket
Parabolic

Nirvana
News
Point & Figure
Cyclic/Seasonal

Internal Progrm
Third System
Margin

Historic Range
Commitment
Volatility

Random Chart
Options
Calendar Spread

Level Table
Other Factors
Recommendation

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Introduction

Silver over the decades has been known to us as "the great disappointer." It seems to have fewer and fewer industrial uses such as photovoltaic or photography uses, and stainless steelware doesn't tarnish as does silver. Investors seem to prefer gold or other precious metals. Silver is being "dragged" higher on the tailwind of gold. Looking for meaning in the gold/silver ratio seems to have lost significance. Most analysts believe silver will be dragged higher by gold, but in a rather plodding and unpretentious fashion. Increasing supply and mining company infrastructure investment isn't helping prices much. Still, we follow our overwhelming buy technical signals with our utlimate recommendation that silver will slowly climb higher in 2019.


Intermarket Analysis

We fed Silver, Gold, and Platinum into a neural network to get the following result:




Parabolic Chart

March Silver:

Parabolic Chart


Nirvana Chart

March Silver:

Initial Chart


News Analysis

Weakness in the U.S. Dollar is promoting buying interest in gold and silver. The markets think that the Federal Reserve is on hold right now in raising interest rates, and seeing the Dollar Index fall below the January 2nd low of 95.37 could spark another wave of gold and to a lesser degree silver buying interest. A weak Dollar means silver will appreciate as the commodity becomes cheaper in other currencies, giving rise to its demand. Positive BlackRock Gold views that slowing global growth and equity market volatility are combining to support silver. ETF's are increasing their gold holdings by 655,415 ounces in the past week alone and SPDR Gold shares are seeing 94,530 ounces flow in one day alone last week. China's precious metal reserves posted their first monthly increase since October, 2016. China's gold reserves have been masked by China's expanded import network. Histrocally, China imported nearly all of its gold through Hong Kong alone. The silver market has rebounded from equity markets' two-sided wild sessions and could be poised to benefit from improved physical demand. It is getting a lift from gold spillover and classic technical buying.

Signficiant upside potential is seen for silver producers, with mining companies having less-than-stellear balance sheets and high cash costs and high risk. Some stocks of silver miners can rise or fall now 25% in a day depending uponn silver prices. These are stocks like Endeavour Silver or First Majestic Silver in Mexico and Hecla Mining Pan American Silver is also on that list.

Demand for gold and silver in India was muted causing prices to slip there. Local jewelers have reduced demand. After Beijing announced a new round of trade talks with Washington amid fears of a global ecoomic slowdown, the U.S. Dollar regained some footing.

Kitco Gold Co. released an article stating that silver prices will climb to $20 and outperform gold in 2019. The basis is the ratio between gold and silver which historically has silver at a much higher relative price. Howver, Kitco thinks uranium will be the best performer of all metals in 2019.

Atlanta Federal Reserve President Bostic sees only one U.S. interest rate increase this year. Though U.S. economic growth was faster-than-expected in 2018 and prompted the Fed to raise interest rates four times, business contacts appear less confident about the coming months while clouds develop overseas. Economic data from China and Europe is weak and there has been a recent selloff in stocks. Precious metals historically go opposite to stocks.

Fed Chairman Jerome Powell said the Fed would be "patient" in what it decides to do next.'

Inflation will not be a major issue in 2019, but precious metals can still shine. Core inflation which strips out volatile food and energy costs is expected to rise onlyi 2% in 2019. Even as wages are expected to grow, Merill Lynch does not see significant inflation pressure. Silver is a "non-yielding" asset benefitting from no rise in interest rates. Lower oil and energy prices may counter-balance inflationary pressures from the ongoing trade dispute. That would put a cap on silver prices.

One possible overlooked story boosting precious metals prices is the U.S. destroyer sailing into disputed South China Sea amid trade talks. China calls the guided missile destroyer a "provocation." The U.S.S. MCampbell carried out a "freedom of navigation" operation, saling within 12 nautical miles of the Paracel Island chain. China says this violated both Chinese and International Law. China claims almost all of the strategic South China Sea. Vietnam, the Philippines, Brunei, Malaysia, Indonesia, and Taiwan all have competing claims within the region. China has been building military installations on artificial islands and reefs.

Geojit Financial Services see silver leveling off at $17.70/ounce maximum as it follows gold to edge higher. Investor sentiment has been influenced by concerns over slowing global economic growth and the impact of tariff clashes between the world's two largest economies. Anxiety over Brexit and an Italian budget crisis have hit investor confidence as well. A leveling off of U.S. interest rates has raised preciious metals' appeal as a safe haven. Sentiments in international markets are generally described as "subdued" in precious metals markets.

A drop below $13.60 in silver price would spark major liquidation. Reports say the silver market was in deficit last year, the fifth consecutive year of deficit. Key producers like Peru, China, and Argentina reported a decline in output due to supply disruptions last year. The latest deficit was 26.0 million ounces where mine supply fell for the second consecutive year by 4% in 2017, following 13 consecutive annual increases prior to 2016. This was the result of years of capital expenditure reductions in combination with supply disruptions, particularly in the Americas. Scrap supply contracted by 1% in combination with net-hedging of 1.4 million ounces and total silver supply fell by 2% to just under one billion ounces. Physical demand contracted by 2% in 2017 due toi a 27% drop in coin and bar demand.

Until a few yiears ago, London accounted for roiughly 90% of all global trading in silver, but the growing influence on the Middle and Far East has reduced London's share. Silver used in photographic applications continued to decline, falling by 3% in 2017. That market has largely bottomed. Silver demand from the photovoltaic industry rose to a fresh high of 94.1 million ounces in 2017, surging 19% from the previous year. China was the main contributor, accounting for more than half of the world's new solar panels. Silver jewelry fabrication edged higher in 2017, rising 2% mostly from India. India played a central role in a 12% annual increase in global demand for silverware fabrication. Silver coin and metals fabrication tumbled by a sharp 35% in 2017.

The gold/silver ratio retreated briefly in the middle of 2015 to close the year at 71.4. At the end of 2017 it was 77. "Smart money" has been preferring gold as a hedge against inflation and a safe haven.

Last year was a tough one for silver investors and miners. It started the year on a positive note, opening at just over $17/oouce, but then fell to under $14 by mid-November. It rallied in recent days, following gold higher, but is still well under $17 and down by over 8% over last year. According to some analyists, silver will remain stagnant over the course of 2019 with higher gold the only tailwind that will push silver higher.

A key reason for silver's slump in 2018 was a growing supply surplus because of a recovery in mine production. Significantly higher silver prices since 2016 saw a flurry of investment among miners expanding operations. That saw a supply of over 35 million ounces emerge during 2918 compared to 24 million a year earlier. Some analysts believe that the surplus will decline in 2019, but there are indications that the substantial surplus is here to stay. Primary silver miners have been ramping up production at a frantic rate while focusing on reducing costs, making it profitable to keep operating even if silver trades at less than $16/ounce. The world's largest silver producer is Fresnilo PLC, which boosted its silver output by 8% compared to a year earlier to 42.7 million ouinces.

Pan American Silver is expected to resume production at its shuttered Guatemalan Escobal mine. Surplus may be accompanied by weaker demand. A rapid uptake of solar power has failed to generate the massive demand previously anticipated for silver. Manufacturers are substituting less costlyi metals and reducing the volume of silver required through technological improvements. Demand for photovoltaic use is anticipated to drop by 40% between now and 2024. Manufacture of PVC's accounts for 16% of all silver demand. Cryptocurrencies are getting greater interest among investors than silver builion in the form of bars and coins.

The bottom line is that analysts expect to see silver edge higher in 2019 only because of firmer gold, but see little sustained recovery during the year.


Point & Figure Chart

 23.0|                                                                  T  1/ 4
     | CMX - Mar-19 Silver Mini, 2500 oz. $/oz.    Cm.=0.01  Lim.= 0.8
     |
     |
     |                             X
 22.0|_____________________________XO__________________________________________
     |                             XO  X X
     |                             XOX XOXO
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     |                             XOXOXOXOXO
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     |                             X  O OXO OXOXO
     |                             X    O   OXOXO
     |                             X        OXOXO
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     |                             X        OXO OX
     |                             X        O   OXO
     |                             X            OXO
     |                             X            OXO    X
 19.0|_________________________X___X____________O_O__X_XO______________________
     |     X                   XOX X            O O  XOXO
     |     XO                X XOXOX            O O  XOXO    X
     | X X XO                XOXOXOX            O O  XOXO    XO
     | XOXOXO                XOXOXO             O O  XOXOX   XO
 18.0|_XOXOXO________________XO_OX________________O__XOXOXO__XO________________
     | XO OXO                X  OX                OX XOXOXO  XOX X
     | X  OXO                X  OX                OXOXO OXO  XOXOXO  X
     |OX  OXO                X  OX                OXOX  OXOX XOXOXO  XOX
     |OX  OXO        X       X  OX                O OX  OXOXOXOXOXOX XOXO
 17.0|OX__OXO________XO____X_X__O___________________OX__OXOXOXO_OXOXOXOXO______
     |OX  O OX       XO  X XOX                      OX  O OXO   OXOXOXOXO
     |O     OXO  X   XO  XOXOX                      O     OX    OXO O O O
     |      OXOX XO  XO  XOXOX                            OX    OX      O
     |      OXOXOXOX XO  XOXOX                            OX    O       O
 16.0|______OXOXOXOXOXO__XOXOX____________________________OX____________O______
     |      O OXO OXOXO  XOXO                             O             O
     |        OX  OXOXO  XO                                             O  X
     |        O   OXO OX X                                              O  X
     |            OX  OXOX                                              O  X
 15.0|____________O___OXOX______________________________________________O__X___
     |                O OX                                              OX X
     |                  O                                               OXOX
     |                                                                  OXOX
     |                                                                  O OX
 14.0|----|----|----|----|----|----|----|----|----|----|----|----|----|----|---
                     11111                       1111          111       111
      2334445778888990022223344456667777778889999112213345678890022234466012
      2130021011122020301210212200220001120110022010100221110011220101211011
      4916879950804282071864312848245671375072917117547117224980762518438221
The above chart is giving a conventional buy signal.


Cyclical and Seasonal Factors

We are headed toward a cyclical low and are in a seasonal up period.

Cyclicals Cyclicals Seasonals
Seasonals


Internal Program

Our best-performing internal program is "Gotthelf." It is giving a buy signal.

Internal Printout 1

Results of "Gotthelf" for Silver (blue lines = successful trades, red, unsuccessful): (Not always in the market.)

Results


Third System Confirmation

Our third system is working on a long-term buy signal. (Note, disregard the year on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)

Third System


Margin

The point value is $5,000. Initial margin on a single contract is $3,960. Use of options is advised.


Historic Range

Even if we eliminate the "blip" in 2011, scale trade buyers are entering the market for the long term in this price range.

Historical Chart


Commitment of Traders

Commitment 1

In the chart below, the yellow line is the futures price, read on the right axis. All other colors are read on the left axis. Blue is small speculators. Red is large speculators. Green is commercials. Commercials with the best track record are getting increasingly-short.

Commitment 2

Interpretation of a Different Site Below (Their trader categories vary from ours):

Commitment 3


Volatility / Probable Range

FB 1 FB 2

The average volatility shown below suggests that a change in major trend to down is imminent near a volatility low point.

Range/Volatilitiy Chart


Possible Future Prices

Random Chart


Option Recommendation

Our option trade recommendation is to Buy (1) Silver July 15.5 Call and Sell (1) Silver July 16.0 Call @ .31 to the buy side or less.


o 1 o 2 o 5

o 3 0 4


Calendar Spread

What the Mar. - Dec. calendar spread suggests to us is that buying the near contract and selling the far one is at most times not profitable, which we think is a sign that these futures may go downt in the long run. The best time to enter or leave the above spread is when it is at -0.04 or narrower buying the far as prices are rising and then selling the near, and exiting or entering when it is at -0.59 or wider selling the far as prices are falling and then buying the near. At this time, we appear to be headed toward the buy the far, sell the near point.





Level Table:

Level Table

The path of least resistance is down.
 19.5|                                                                  R 12/ 5
 CMX - Mar-18 Silver Mini, 2500 oz. $/oz.    Cm.=0.01  Lim.= 0.8
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     |EEEEEEEFFGHJJKKKKTTUU
 18.0|DEEEEEFFGGHJKKTTTUU______________________________________________________
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     |DDDEEGGGHHHHKKKNNNNTUUUUU     |DDEGGHHHKKNNNNNTTTUU
     |CDDEGGGGHHKKKMNNNTTTTU
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     |AAAAAACCCDDDDDDDGGKKMMMMNNNNOSTTTUUUWW
     |AAAAAACCCDDDDDGGGGKMMMMMNNNOSSSUUWWWXZZ
     |AAAAAACCCCDDDDGGGGGKMMMNNOOSSSSSSSSTUUUVWWWWWWWXXXYYYYYZZ
     |AAAAACCCCCCDDDGGGKLMMMNNOOSSSSSSSSSSTTUUVVWWWWWXXXXXYYYYYYYYYZZZZZ
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     |ACCCCCCLLMMMMNOOOPPRRRRRSSTUVVVVVVWXXXXXXXYYYYYZZZ
     |ABBCCCLLMMMOOOOOOPPRRRRRRRSSVVVVWWXXXXXYYYZZ
     |ABBCLLLMMOOOOOOPPPQRRRRRRRSSVVVVVWXXXXZ
     |AABBBCLLLLLLMOOOOOPPQQQQRRRRRVVVVWXZ
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 15.0|-A-B-C-D-E-F-G-H-J-K-L-M-N-O-P-Q-R-S-T-U-V-W-X-Y-Z----|----|-- TPO=-0.076
       1 1                                       1 1 1 1 1           1
       2 2 1 1 2 2 3 3 4 4 5 5 5 6 6 7 7 8 8 9 9 0 0 1 1 2           2
       0 2 0 2 0 1 0 2 0 1 0 1 3 1 2 1 2 1 2 0 2 0 2 0 1 0           0
       7 0 5 0 3 7 6 0 3 8 2 6 1 4 8 3 7 0 4 8 2 6 0 3 7 4           5


Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary


Here's an intraday chart for a previous day ( 7/11 ).

Intraday Chart


                 Risk Versus Opportunity Report
                ________________________________

                     SIH9    March Silver

                      High Price:  16.65
                   Current Price:  15.76
                       Low Price:  15.32

                            Risk:  0.055
                     Opportunity:  0.111

                    (O/R) Ratio =  2.023


Overall Recommendation

Decision Weighting Factors
FactorsWeighted Points
Inter-Market Analysis + 1
Parabolic Chart + 1
Nirvana Chart + 1
News + 1
Point & Figure + 1
Cyclicals - 1
Seasonals + 1
Internal System 1 + 1
Internal System 2 0
Third System - 1
Historic Range + 1
Commitment of Traders + 1
Range/Volatility - 1
Level Table + 1
Other Factors + 1
Total + 8
Place 3 March Silver on a Buy Watch with stoploss @ -0.60 below the get-in point when recent price is represented as "15.76".
____________________________________________________________________________________________________________________________________________G.S.