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  • Price of silver has been elevated to the highest levels since 2013, but now faces strong supply prospects.
  • The price is retesting the upside structure, where failures will underpin the case that the downside has more room to run.

The price of silver has been relentless and a preferred store of investment as evidenced in the gold/silver ratio down some 45% since the March 2020 peak. 

At the time of writing, silver is trading at $27.45 up 3.82% having rallied from a low of $25.8239 to a high of $27.5739.

Analysts at TD Securities noted that the sharp pullback in precious metals helped to sap out excess positioning from gold futures.

Indeed, positioning data suggests that money managers substantially liquidated their gold futures length amid the pullback, placing the latest estimate of position size in line with expectations given the number of traders long.,

the analysts explained.

Therefore, this might go to explain where silver has picked-up the extra bid of late, recovering from the early August peak’s sell-off where it had hurtled towards $30, a monthly resistance zone, but failed to breakout higher.

Investors bought the pullback and the price has retraced a significant portion of the drop

Notwithstanding, silver continues to hold a substantially cleaner positioning slate, which mitigates this risk for the white metal,

the analysts at TDS wrote, noting that the scale of appetite for precious metals remains massive, ”as retail flows into the complex continue to rise despite these macro headwinds,” as the analysts referred to the recent spike in US yields. 

Eyes on the FOMC and US yields

Precious metals are not a hedge against real yields, for which rise in tandem with nominal yields.

Given the surge in US yields, this week’s Federal Open Market Committee will be paramount for precious metals speculators. 

Minutes of the July FOMC meeting are released on Wednesday and traders will be watching out for guidance pertaining to the  Average Inflation Targeting (AIT) or Yield Curve Control (YCC), both of which are dollar/US yield negative, precious metals positive themes. 

Considering we still expect real rates to eventually resume their fall, should headwinds shift to tailwinds, we could see precious metals resume their upward trajectory with a substantial amount of strength,

the analysts at TDS argued.

However, ”for now, the early-dip buyers still remain vulnerable, suggesting a deeper pullback could still be in the cards, but the headwinds are quickly fading.”

Silver levels

This brings us to the charts.

As we can see, the price has moved up aggressively to a strong level of supply. with additional resistance overhead, reinforcing the technically bearish outlook.

From a daily perspective, the price has attempted to retest the structure and is failing, which could give rise to a meanwhile continuation to the downside.