Silver (XAG) Forecast: Silver Market Volatility Explodes as CME Hikes Margins

Silver Volatility Continues as Traders Find Value Around $71.17 to $70.52

Spot Silver (XAGUSD) is trading higher on Tuesday as the volatility continues near yesterday’s record high. The short-term range, according to the swing chart is $60.80 to $84.03. Its 50% level at $72.41 has been tested two straight sessions. On Monday, the market leveled off at $70.52, earlier today, the low was reached at $71.17. This suggests that bullish traders are finding value around $71.17 to $70.52.

This week’s range is $84.03 to $70.52. Its 50% level at $77.28 could be resistance or the trigger point for an acceleration to the upside. I’d keep an eye on that one.

Dramatic Reversal Top Signals Potential 2-3 Day Correction Ahead

On Monday, the market posted a dramatic closing price reversal top. It wasn’t the vanilla reversal, higher-high, lower close. This one also closed under the opening price and the mid-point for the day. The next step in the reversal process is the follow-through to the downside.

Taking out $70.52 will confirm the potentially bearish chart pattern. This could trigger the start of a 2 to 3 day correction into the next major support zone at $64.79 to $60.25. A break back into this area could get ugly but as long as the 50-day moving average at $56.28 holds as support, it could turn into a buy-the-dip situation.

Trading the Chaos: How to Navigate Extreme Silver Volatility

The key to trading this type of volatility is to find out where the big orders are on the bid and on the offer. Big money will whip prices in both directions trying to find the weakest shorts and longs in order to take them out. With this kind of price action, someone has to be trapped on the wrong side especially during a holiday week where buying strength and selling weakness is not the best strategy.

It’s probably better to let the market come to you where you can control the entry and exits. Straight stops aren’t recommended if they are in front of the “size”, the real buyers and sellers. Buy and sell in front of size so you can lean on it if you’re day trading. What’s difficult about trading at this time is the narrative and momentum have shifted. We now have a two-sided trade after trending for nearly the whole year.

Two-Sided Trade Emerges as Big Money Shakes Out Weak Hands

The long-term fundamentals haven’t changed, but the short-term trade has. Those who want silver for the long haul are going to try to shake the tree to spook the weaker longs.

CME Margin Hike Echoes 1980 Hunt Brothers Squeeze

Adding to the volatility is the news that the CME has raised margin requirements. This is the same move Comex did in 1979-80 to squash the volatility and to squeeze out the Hunt Brothers who were rumored to have a controlling interest in about 2/3 of the silver market.

There is always a lesson learned in these markets. For most of the year we heard about deficits, demand, geopolitics, safe havens and rate cuts, but sometimes the invisible hand of the regulators can come along and spoil the party. As the old man once said, “nothing cures high prices like high prices.”

More Information in our Economic Calendar.