A Silver Santa Rally?

Despite the recent pullback, the silver price has seen some very nice gains so far in 2024. But how will it finish the year? Could it continue to bounce back from the November losses, or will it further weaken in December? Predicting short-term prices is always a tricky business, but there are some signs to share this week that might leave you more optimistic.

Silver Price Trends and Seasonal Patterns

First, some stats...

• The spot price of silver finished 2023 at $23.79/ounce.
• Price peaked on Oct. 23 at $34.85.
• Price then declined to a low of $29.75 over the next sixteen trading days.
• In total, that's a 46.5% rally, followed by a 14.6% pullback.

Now, what happens next? A rally into year-end or more price weakness? My inclination is that we are going to see a rally. Why? Three reasons.

First, the months of December and January are two of the strongest "seasonal" months of the year. History has demonstrated that precious metal prices often rally at this time of year, and I expect 2024 to continue the trend. In 2023, the spot price of gold rose by 1.3% in December while the silver price fell by nearly 6%. An unusual dichotomy. However, as you can see in the chart below from Ole Hansen, the period 2017–2022 saw sharp gains for both metals every year in December.

Market Positioning and Trader Insights

Next, let's check the latest Speculator and Commercial positioning from the CFTC's Commitment of Traders report. Below from Goldseek is the latest, surveyed at the COMEX close on Tuesday, Nov. 26.

Silver COT Report - Futures

If we subtract the Large Speculator gross short position from the long position, we get a NET long position of 42,783 contracts. That's down from a high of over 66,000 contracts net long back on Oct. 22 when price peaked at $34.85. That's also the smallest Large Speculator net long position since the survey of Sep. 10, when price was $28.40. So, could you say that the November decline "washed out" the Large Speculators? Yes, you could.

Digging deeper, let's compute the Commercial net short position by subtracting their longs from their shorts. When we do this, we find a net short position of 61,158 contracts. Yes, that's a lot. That's over 300,000,000 digital ounces! But that's also their smallest net short position since the survey of March 12. Where was the price on March 12? $24.14/ounce.

Technical Analysis: Patterns and Predictions

And keep that date in mind. Want to know what else is back to March 12 lows? If we dig into the specifics of the disaggregated report, we find that both the "Hedge Fund" net long position (+23,105) and "Swap Dealer" net short position (-26,749) are back to March 12 lows, too.

Silver - Daily Candlestick Chart

While this latest Commitment of Traders data doesn't mean that price can't decline further, it most certainly signals that there's no reason why it can't rally. The "CoTs" are washed and ready for the next surge to Speculator long interest to move prices higher.

Lastly, let's look at the chart of COMEX silver futures. The new front month is the Mar25, and its history is shown below, along with its 200-day moving average. With a little help from my end, what do you notice?

Silver - Daily Candlestick Chart

What I want you to see is the similarity between this current pullback and the decline from the highs last May. Back then, price fell about 18.8% over ten weeks. This current pullback has extended for six weeks and, so far, the drop from high to low is about 15.3%.

Will the Silver Price Rally Continue?

More importantly, look at the red line of the 200-day moving average. The lows in August were found once price neared this key technical level. Price is near that level again, so could we also be near the next low? My bet is yes.

Off the bounce from the 200-day in early August to the peak in late October, the Mar25 COMEX silver price rallied a full $8 from $27.50 to $35.50. That's nearly 30%. A similar move from today's level would take the price to near $39 sometime in early 2025. Would that work for you? That would work for me!

In conclusion, the stage is set for another year-end rally in the precious metals sector. But will it happen? There are all sorts of things that could prevent it. Maybe the dollar index will continue higher? What if the economic data suddenly improves post-election? Perhaps The Fed will signal a hawkish bent at their next meeting? Those three items alone could conspire to put a halt to any Santa Claus rally.

However, the point of this post is to show you that there is nothing preventing Santa Claus rally either. With that, let's see where the month takes us as we close out what has been a terrific 2024.

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