Silver Macro Projection Model

SILVER MACRO PROJECTION MODEL
Multi-Factor Fair Value Estimation for Silver

OVERVIEW
The Silver Macro Projection Model estimates silver's fair value based on its historical relationships with key macroeconomic drivers. By synthesizing data from gold, M2 money supply, the US Dollar Index, and major equity indices, this indicator projects where silver should theoretically be trading, helping traders identify potential overvaluation and undervaluation conditions.

HOW IT WORKS
This indicator employs three complementary projection methodologies:

• Correlation-Weighted Z-Score Composite (50% weight) - Calculates rolling correlations between silver and each input factor. Factors with stronger correlations receive more influence. Each factor is normalized to a z-score, combined into a composite, then converted back to silver's price scale.
  
• Gold/Silver Ratio Mean Reversion (35% weight) - The gold/silver ratio historically exhibits mean-reverting behavior. This component projects silver's implied price based on current gold prices and the historical average ratio.
  
• M2 Money Supply Relationship (15% weight) - Silver tracks monetary expansion over long time horizons. This anchors the projection to the fundamental relationship between silver and the monetary base.
  

INPUT FACTORS

• Gold - Strong Positive - Precious metals move together; silver amplifies gold
  
• M2 Supply - Positive - Inflation hedge; expands with monetary base
  
• DXY - Negative - Dollar strength pressures commodity prices
  
• S&P 500 - Variable - Risk sentiment indicator
  
• Dow Jones - Variable - Industrial/economic health proxy
  
• Nasdaq 100 - Variable - Growth/risk appetite indicator
  
• Russell 2000 - Variable - Small-cap risk sentiment
  

VISUAL ELEMENTS

• Silver Line (Gray) - Actual silver price
  
• Yellow Line - Model's projected fair value
  
• Green Fill - Silver trading BELOW projection (potentially undervalued)
  
• Red Fill - Silver trading ABOVE projection (potentially overvalued)
  

INFORMATION TABLE

The indicator displays a real-time panel showing:

• Current correlation coefficients for each factor
  
• Dynamic weight allocation based on correlation strength
  
• Z-scores for each input factor
  
• Actual vs. projected silver price
  
• Percentage divergence from fair value
  
• Signal classification (Strong Buy to Strong Sell)
  

SETTINGS
Lookback Settings

• Correlation Period (default: 60) - Bars used for rolling correlations
  
• Regression Period (default: 120) - Bars for z-score normalization
  
• Smoothing Period (default: 10) - EMA smoothing on projection
  

Weight Settings

• Use Auto Correlation Weights - Weights adjust dynamically based on correlation strength
  
• Manual Weights - Override with custom factor weights
  

ALERTS

• Silver Extremely Undervalued (Z < -2)
  
• Silver Extremely Overvalued (Z > +2)
  
• Price crossed above projection
  
• Price crossed below projection
  

BEST PRACTICES

• Use on daily timeframe for most reliable signals
  
• Combine with the companion Divergence Oscillator for timing
  
• Extreme divergences (>2 sigma) historically precede mean reversion
  
• Consider macro environment as correlations shift during different regimes
  
• Longer regression periods (150-250) for investing; shorter (60-90) for trading
  

Disclaimer: This indicator is for educational purposes only. Past correlations do not guarantee future relationships. Always use proper risk management.