Trend reversal in silver is coming: TD Securities bets long on silver

A trend reversal is looking likely for silver, according to TD Securities, which issued a long call on silver, projecting a $19-an-ounce price level by March 2021.

TD Securities uses its C.H.I.L trend analytics to make trade predictions that uses “10,000 simulations of future price paths to determine critical thresholds for a change in trend.”

The bank’s latest call focuses on silver, with strategists citing an uptrend forming — “top trade betting on uptrend formation in silver: long Mar21 $19.00/oz silver call,” they said.

At the time of writing, July Comex silver futures were trading at $17.935, down 0.13% on the day. Silver has been playing catch-up to gold these past three weeks after missing out on the safe haven’s rally in April and the beginning of May.

TDSJune - Trend reversal in silver is coming: TD Securities bets long on silver

TD Securities strategists project more gains for silver in the long term, highlighting industrial demand as one of the key drivers.

“A low hurdle rate for a sustained trend reversal, combined with a backdrop of firming industrial demand, rising investment flows and limited speculative activity argue for a potential positive skew in the distribution of silver’s returns,” the bank’s commodity strategists said this week.

This new trend could reverse the divergence in precious-metals space that saw gold posting gains while silver and platinum struggled, TD Securities said.

“Risk appetite and deflationary worries cap gold. Industrial precious benefits from improving commodity demand,” the strategists said. “Conditions are favorable for a trend reversal in silver which could keep prices supported as a sustainable uptrend forms.”

After reaching $19 in March 2021, TD Securities projects further gains that would see prices rise to $20.25 in the third quarter of 2021 and then to $21.75 in the fourth quarter of 2021.

‘Silver is an explosive metal’

Silver is benefiting from increased industrial demand as well as rising safe-haven flow demand, the bank pointed out.

“A simple analysis extracting the (rolling) regression coefficient of silver’s returns as a function of gold’s and our commodity demand indicator suggested that silver has increasingly been driven by commodity demand. At the same time, however, we note that silver ETF [exchange-traded-fund] holdings have been highly correlated to gold’s of late — suggesting investment demand for the precious metals theme is also flowing to silver. Speculative interest in CME products has been extremely low, but a CTA [Commodity Trading Adviser] buying program could revive speculative interest,” the strategists explained back in May.

The combination of the two drivers working side by side “creates the set-up for explosive performance,” the strategists added, pointing to fairly constrained supply side.

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