USD, OIL - Silver?

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morganist

I was just looking at the silver price and wondered why it had fallen so sharply over the past few weeks. The answer is the rise in the USA, which silver has a 70% negative correlation to. But why did the dollar rise in value? It is because the price of oil increased and most oil has to be purchased in dollars, so you have to purchase dollars to be able to purchase oil which has pushed the price of the dollar up.

I was thinking that it might be possible to predict the price of silver by looking at the price of oil through the link that oil and silver have to the dollar. In short a rough rule would be that if the price of oil increases, the price of silver will fall and if the price of oil falls the price of silver will rise purely because of the relationship that the two commodities have with the US dollar. Any thoughts?
 
The equation does not make sense if we extend it to the extreme case, where inflation is out of control and oil is 1000 dollars per barrel, the silver price will go down 10 or 5 times lower? I do not think it will happen. The price of silver may be related to the decreased activity of industrial comsumption
 
morganist said:
I was just looking at the silver price and wondered why it had fallen so sharply over the past few weeks. The answer is the rise in the USA, which silver has a 70% negative correlation to. But why did the dollar rise in value? It is because the price of oil increased and most oil has to be purchased in dollars, so you have to purchase dollars to be able to purchase oil which has pushed the price of the dollar up.

I was thinking that it might be possible to predict the price of silver by looking at the price of oil through the link that oil and silver have to the dollar. In short a rough rule would be that if the price of oil increases, the price of silver will fall and if the price of oil falls the price of silver will rise purely because of the relationship that the two commodities have with the US dollar. Any thoughts?
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Interesting thesis! Good thinking.

The chart below shows three ETFs: USD (UUP), Oil (USO), and Silver (SLV).

The dramatic decrease in oil in early 2020 is obviously due to COVID. The dollar has remained fairly constant relative to both silver and oil. The correlation appears to be between Oil and silver: as oil rises, silver falls. I see this as rational: as the wheels of society start grinding again, oil consumption increases, and demand for silver (as a hedge against uncertainty) decreases.

uup_uso_slv.PNG

Thanks to Interactive Brokers TWS for this chart
 
upload_2021-10-1_2-7-2.png

This is crude oil cash vs XAGUSD (silver), 20 years.
My experience, you cannot reliably correlate gold or silver to anything other than gold vs silver.

upload_2021-10-1_2-11-52.png

Gold cash vs Silver.
 
morganist said:
I was just looking at the silver price and wondered why it had fallen so sharply over the past few weeks.
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My guess is, silver over reacts to gold.
Atm, silver falling hard because of bearish gold.
However usually it doesnt last too long, when silver gets out of whack with gold, usually it is a good time to consider trading contrarian.

On a fundamental note, possibly markets are bearish China/solar panel manufacturing due to issues in China atm, energy / inflation / shipping, manufacturing drying up, consumers belt tightening, again, short term imo.
 
themickey said:
when silver gets out of whack with gold, usually it is a good time to consider trading contrarian.
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The reason for this is due to the fact the crowd is often wrong.
What happens imo, silver will move in tandem with the gold trend, either bullish or bearish but more strongly because of sentiment, eg silver will out pacegold in a bullmarket but it gets ahead of itself, you can tell how emotional the crowd get, then bang!, time to pull the rug from under feet.
The game plays out time and again. :)
So, when I see silver runaway from gold, its time for change coming up, hehe.
 
So, in a way, silver is a better trade than gold, because it runs in either direction harder.
Downside to this theory, there are very few pureplay silver stocks as silver is a byproduct of usually, copper, lead, zinc, tin mining. But futures, yeah, silver would be better imo.
Following on from this, I find gold/silver price erratic, very much like a currency, where it often transgresses TA rules.
 
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kmiklas said:
Interesting thesis! Good thinking.

The chart below shows three ETFs: USD (UUP), Oil (USO), and Silver (SLV).

The dramatic decrease in oil in early 2020 is obviously due to COVID. The dollar has remained fairly constant relative to both silver and oil. The correlation appears to be between Oil and silver: as oil rises, silver falls. I see this as rational: as the wheels of society start grinding again, oil consumption increases, and demand for silver (as a hedge against uncertainty) decreases.

View attachment 268756
Thanks to Interactive Brokers TWS for this chart
More...
Silver as a hedge against uncertainty? Approximately 20% is held, rest is industrial uses and jewelry and therefore demand rises as economies and wealth grow.
 
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