Silver Price Prediction – Large Option Open Interest Should Draw Prices Higher

Silver prices edged lower on Friday, declining by 0.25%, but settled up about 0.45% for the week. The surge in the dollar on Friday generated headwinds for silver and the entire precious metals complex. With yields not impressed with higher inflation levels, lower yields are likely to weigh on the dollar and eventually buoying silver prices. The daily charts show that prices are consolidating between a tight range. Traders await the next commitment of trader’s report, but open interest is still likely to show a significant number of long contracts held in the managed money category. There is large option open interest (which is the number of open option contracts, at the $26 strike options that settle in one week and the $26 and $27 strike that mature in 2-weeks. If the markets can push the price another 4% it should begin to see additional short-covering.

Technical Analysis

The weekly chart shows that prices moved higher and continued a long-term bull flag pattern that is a pause that eventually refreshes higher. Resistance is seen near a downward sloping trend line on the weekly chart at $28.45. Support is seen near the 10-week moving average at 26.92. Short-term momentum is positive as the fast stochastic made a crossover buy signal. The caveat is that the fast stochastic is printing a reading of 83, above the overbought trigger level of 80, which could foreshadow a correction.

Medium-term momentum is also positive as the MACD (moving average convergence divergence) index recently generated a crossover buy signal. This occurs as the MACD line (the 12-week moving average minus the 26-week moving average) crosses above the MACD signal line (the 9-week moving average of the MACD line. The MACD histogram is printing in positive territory with an upward sloping trajectory which points to higher prices.