Is February Just Bad News For Silver?

Is silver’s seasonality about to monkey hammer prices lower?

Bullion.Directory precious metals analysis 11 February, 2015
By Christopher Lemieux
Senior Analyst at Bullion.Directory; Senior FX and Commodities Analyst at FX Analytics

As market complacency is regained through a positive non-farm payroll headline, precious metals have been retreating on a stronger dollar and the assumption that the Greece v. European Union tension will end up honky-dory. 

However, are silver prices about to get pounded lower? Looking at a chart of silver, it seems as though silver is on the verge of falling in conjunction with seasonality; a term to describe cyclic movements in prices. And, prices are already vulnerable.

Silver saw a nice rally on the back of gold, moving up from the mid-$15 per toz. range to almost $18.50. However, price action was stopped dead in it’s tracked at the 50-week EMA, and prices began to reverse. This was relatively the same time gold had trouble closing above $1,300 per toz. Currently, price action is having trouble to rise above the 20-week EMA.

Looking back to 2012, the weekly chart shows silver’s seasonality to occur roughly in February and, typically, bottoms out in June or July.

In 2012, silver lost 30.48 percent from February’s high prior to bottoming out. The shinny metal also fell 43.85 percent and 15.93 percent in those months during 2013 and 2014, respectively. With prices already prone to weakness, this could be a messy few months.

If we were to take the mean of the previous three cycles, silver would look to bottom just above $12 per toz. – OUCH!

Now, this would be horrible for paper longs but a blessing for bullion buyers. Silver could take a big ‘ol dump here, but in the middle of the cycle includes the expected rate hike from the Federal Reserve. A no-go from Fed’s Janet Yellen could hinder any downside.

The European Union and Greece tension could also prevent steep declines if Greece were to axe bailout terms and look to Russia for financing. President Obama also sent a request to Congress in order to use military force against ISIS in Iraq. This comes after the President was so vehement about removing troops from the area, an action that is thought to have given ISIS the power to seize and conquer.

There are too many unknowns, but seasonality can give traders an idea of what may come in the future. Hedge accordingly.

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