The rapid ascension of the dollar over the course of the last year and reduced interest in holding precious metals as a hedge against the latest economic developments has seen silver prices broadly underperform. Precious metals have historically managed to see values hold up in times of uncertainty and market volatility, but as current events show, these are two attributes that are notably absent with silver prices on the verge of retesting lows last seen in 2009. Without a sustained period of volatility that forces a change in the outlook for interest rate policy, silver prices are likely to remain subdued.

The Fundamental Picture

The unwind that began in China earlier in the month has quickly spread to other asset classes, with the volatility stretching across the globe. The shakiness of the market has claimed many victims already, especially as it reflects a situation that combines the softness in the underlying economy with margin calls in financial assets. This is only a natural reaction of financial markets considering the preposterous valuations in certain assets, namely equities which have seen prices disconnect from reasonable levels. This has led to the heightened risk of a deeper correction, one that would typically catalyze a rebound in risk-aversion assets that benefit from times of turmoil. While, silver prices have managed to stage a modest rebound off of last week’s lows, comments from the Jackson Hole Summit may foreshadow further losses in precious metals as the Fed pivots towards more hawkish policy measures as the economic improvement merits a change in the path of rates.

Over the weekend, policymakers from across the globe convened in Wyoming for the annual conference of Central Bankers devoted to discussing the major policy issues. One of the most important speakers was Federal Reserve Vice Chairman Stanley Fischer, the man who sits directly under Fed Chair Yellen. In specific, Fischer covered inflation, stating outright that the Federal Reserve did not require inflation to rebound to the long-term target of 2% before raising rates. This infers that a hike could be closer as opposed to farther and reopening the door for a September hike. With the uptick in US gross domestic product the second quarter recorded last week, the stage is increasingly set for a 2015 hike which could dent precious metals prices further. When combined with 0.20% annualized inflation according to recent consumer price figures, the catalysts for a rally in silver outside a protracted period of volatility remain limited.

The Technical Take

After peaking in 2011 at the height of the bubble in precious metals, silver has found itself in a bear market, with prices falling over 70% from the peak as investors picked yield-chasing over haven assets. Aside from technically remaining in a bear market, prices continue to trade below both the 50-day and 200-day moving average, indicating further potential downside as the external factors line up against silver prices. After experiencing the “death cross” in 2013 (bearish moving average crossover), losses have mounted, with an acceleration occurring due to the ascension in the US dollar. Now that a rate hike is back on the table for 2015 due to strengthening US data, when combined with the existing inverse correlation between the dollar and precious metals it could foreshadow another rally in the dollar that crushes silver prices.

On a longer-term basis, silver prices are setting up in a descending triangle technical pattern that broadly spell more downside in prices as prices consolidate between a prevailing long-term downtrend and recently tested support at 13.962. Put positions should be initiated above the support level with the target being the supper level and a breakout lower. However, should silver prices take out the downtrend line, it could be indicative of a potential reversal higher targeting a sustained rebound in prices. Should prices break the trendline, it could make a shift in the trend, necessitating Call positions to take advantage of any potential rally higher. On a shorter-term basis, prices are setting up in an ascending triangle pattern, typically indicative of a bullish bias with any move above resistance at 14.612 considered a breakout and likely accompanied by renewed upside momentum. Call positions should be initiated below the level with an intraday view towards trading time horizon while the long-term focus is Put positions to be placed on any upside rallies.