Silver faces quite a few tests this week, with monetary policy front and center. Its industrial exposure makes the outlook broader than the gold market, though, so it does make it a little bit noisy.
The Federal Reserve’s October 27 and 28 meeting ends on Wednesday, with the decision scheduled for 2 p.m. Eastern. The practical question will be whether financial conditions become more supportive without an accompanying deterioration in physical demand.
CFTC Positioning
The latest available positioning snapshot suggests that speculators deserve some attention. CFTC futures-only figures as of October 20 showed managed-money longs of 16,180 silver contracts and shorts of 12,675. The calculated net long is 3,505 contracts. Reconstructing the October 13 reported weekly changes gives 5,619 and a reduction of 2,114 contracts.
The chart below shows those two selected weekly observations. With the report being on the October 23 release and the next one scheduled for 3:30 p.m. Eastern Friday, positioning describes an earlier market attitude. It doesn’t necessarily tell us what is going on immediately, but it does give a broader picture of what larger players might be involved in.
Reduced net speculative length can cut both ways, though. It could indicate more cautious demand from that category while also leaving less bullish exposure to unwind. It doesn’t necessarily indicate that silver is under-owned or about to rebound, but it gives us an idea of who is involved.
Industrial Background
The industrial background is a bit more mixed than uniformly weak or strong. The Federal Reserve’s October 16 release showed preliminary September manufacturing output of 0.3%, with total industrial production of 0.7%. Manufacturing grew at only a 0.7% annualized rate over the third quarter. These are production indicators for a completed previous period, not forward-looking.
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See all Silver forecastsThird-quarter semiconductor-related output rose by 28.4% at an annualized rate, while September motor vehicle parts output fell 3%. Such a divergence argues against treating all manufacturing as one demand impulse for raw materials, and stronger activity in an application using silver can help the metal. However, the broader output statistics don’t reveal intensity, purchases, or inventories.
The Second Thing to Focus on Will Be the Monetary Conditions
The 10-year par real yield stood at 2.66% on Monday. A lower real-yield environment can help reduce the relative appeal of interest-bearing alternatives, potentially assisting precious metals like silver. That being said, silver does have industrial sensitivity, which means a growth scare could offset that benefit.
Inflation hasn’t exactly disappeared either. September’s final-demand PPI rose 1.3% monthly and 6.3% annually in the release published on October 15. September CPI rose 0.6% monthly and 3.7% annually in the October 14 release. Those figures help explain the policy dilemma. They are neither new nor immediate.
Advanced GDP
Thursday has U.S. advance GDP and September income and spending releases scheduled for 8:30 a.m. Eastern, and will add growth and PCE inflation information after the Federal Reserve announcement on Wednesday. A combination of steadier demand and less persistent inflation would be more constructive for silver than lower yields driven principally by deteriorating activity.
Financing Costs
Financing costs can also affect industrial use of silver beyond the exchange price. More expensive working capital discourages precautionary stock building, while higher energy costs can help squeeze margins and influence purchasing decisions. These are possible concerns, not verified changes in behavior at the moment.
At this point, monetary relief would help, but industrial confirmation matters. Rising speculative participation alongside firmer production evidence would strengthen a recovery narrative for silver. If restrictive policy expectations are softer, market activity could challenge it.
Technical Analysis
From a technical analysis standpoint, it’s obvious that silver has broken below a massive barrier in the form of $55. The $55 level has seen both support and resistance over the last year, and now it looks as if silver is continuing to drift lower, even as yields are dropping a bit.
The press conference and statement coming from the Federal Reserve tomorrow could be a major factor in where we go next. In order to become mildly bullish, I would need to see silver rise well above $55 and perhaps even above $57. Continued weakness from here could send silver looking for the next psychologically important figure in the form of $50.