Silver Seasonality

In a recent piece by Jeff Hirsch, he takes us through the current market environment in Silver and tells us that we may be reaching a period of historical weakness in the precious metal.

Jeff points out that that historically, between early February and late June, Silver has shown very bearish price action. In fact, 35 times in the last 46 years, the specific period between February 20th and April 25 has seen Silver trade lower. Further, even during the major bull market in Precious Metals (as an asset class, not just Silver) that we saw from 2002-2011, Silver only traded higher during this roughly two-month period four times. And since 2011, this period of seasonal weakness has been proven correct in each year besides 2016, when Silver was coming out of an extreme oversold reading.

So, where do we stand right now? In the current environment, Silver is currently running into overhead resistance around $16/ounce. For nearly all of 2016, 2017, and 2018 this was a level of support for the price of Silver. In the summer of 2018, price began to trade below this zone. Now that we have broken below, it is considered an area of resistance. 

To add to Jeff's caution, based on the historical seasonality of Silver, I'd also like to point out that we are seeing a bearish (negative) divergence on this RSI. This occurs when price makes a higher high, but RSI makes a lower low, meaning that the momentum on the last upward swing isn't a strong as the previous upward swing.

From another point of view, Silver also continues to underperform the equity markets. As displayed in the Relative Strength chart below, we can see that Silver, similar to its absolute chart, has broken below a key area of support. If Silver cannot outperform the S&P 500 (which is has not been able to do for a sustainable amount of time in the past 8 years), is there really any true strength here? 

Given Jeff's data on Silver during the February-June time period, combined with the overhead resistance we are seeing on an absolute basis and a relative basis (against the S&P 500), I think the weight of the evidence is that we Silver will trade lower over the short- and intermediate-term. There are other relationships we can talk about, such as Silver/Gold or DBP/SPY. Currently, they all say the same thing: there is no long-term change yet in the direction of Silver (or Precious Metals as a whole) and we should not expect to see one over the coming months.