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Silver Futures Defy Expectations

September 22, 2023

From the Desk of Ian Culley @IanCulley

Markets are adjusting to rising rates as investors weigh the possibility of “higher for longer.”

Bonds are breaking down to fresh lows. The major US stock market indexes are chopping within a range (perfectly normal from a seasonal and cyclical perspective). And commodities are kicking back into gear. 

All of these intermarket pieces fall neatly into a dynamic puzzle. Nothing appears out of place.

But the best information comes from markets presenting atypical behavior or defying expectations.

One commodity is doing just that as we head into the weekend...

Silver!

Did silver not get a copy of the FOMC press release? Or perhaps silver ignored it altogether… 

Silver should sell off as the 10-year yield hits a new sixteen-year high and the US dollar heads toward its tenth consecutive up-week.

But Gold’s “crazy cousin” has other plans.

Check out the silver futures chart:

Silver is holding above a year-long trendline and a shelf of former lows from earlier this year.

I envisioned silver slicing through those former lows following Wednesday’s Fed decision. But here we are Friday morning as silver futures catch a bid and bullish momentum continues to improve.

It’s too early to pinpoint what’s driving the dislocation. But something is off. Interestingly, the euro also fails to decisively break down (another market I expected to catch lower given broad dollar strength and rising interest rates).

My mind turns to the possibility of the positive correlation between rates and the dollar finally decoupling. But this is only an idea until we see evidence supporting it.  

Meanwhile, the action in precious metals is impressive.

It’s not simply their resilience or uncharacteristic behavior that captivates me. It’s the fact they refuse to catch lower while most investors don’t want to own them. 

Stay tuned!

COT Heatmap Highlights

  • Commercial hedgers post a three-year net-short position in cocoa.
  • Commercials increased their short exposure to heating oil, hitting a new three-year extreme. 
  • And commercials reached a new record-long position for the Australian dollar

Click here to download the All Star Charts COT Heatmap.

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