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Silver: precious metals to strengthen further?

Updated  Jan 11, 2017 9:06:42 AM Written by Fawad Razaqzada



Precious metals are continuing to recover nicely from their bear trend that had started from July of last year. Gold has hit its highest level since the end of November, while silver has reached its best level since the middle of December, though both metals were trading narrowly mixed at the time of this writing. The slightly weaker dollar and expectations of rising global inflation have been the biggest drivers behind gold and silver. Gold, as well as a perceived safe haven metal is also considered to be a good hedge against inflation.

Though the dollar has bounced back today, I think there is potential for it to weaken again as currently there are no fresh catalysts to drive it higher – granted Donald Trump is speaking later, which may cause some volatility in the FX and equity markets, and by extension gold and silver. Despite my short-term bearish view, the dollar remains well supported in the long-term as the Fed continues to be the only major hawkish central bank out there.

Thus, in the short-term, we could see gold and especially silver make further progress. Why “especially” silver? Well, the daily chart of Gold-Silver ratio looks like it is starting to turn lower again, meaning that gold will be underperforming silver going forward. It is worth pointing out the obvious here which is that both metals could also fall in unison; the chart merely highlights the relative performance of one against the other regardless of the direction of the two precious metals.

Now in terms of silver itself, the grey metal continues to rise inside its bearish channel. So, for the time being, one has to be wary of the fact that silver is technically still in a bear trend. However, it is very encouraging to note the key long-term support area around the $16 handle has held as support (see shaded area on the chart). Silver now needs to break its trend of lower lows and lower highs in order to confirm a change in direction. This makes the area around $17.20 (the last swing high) very important – if silver breaks through this level then we could see an eventual bullish break outside of the bear channel, potentially leading to some significant gains.

Conversely, if short-term supports such as $16.70 and $16.25 break then a revisit of $16 would become highly likely, and perhaps this time the support may give way for a move towards the 2015 lows. This is not our base case scenario, however.

Figure 1:

Source: eSignal and FOREX.com. Please note, this product is not available to US clients

 

Figure 2:

Source: eSignal and FOREX.com.

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. GAIN Capital Group, LLC is a registered Futures Commission Merchant and Retail Foreign Exchange Dealer with the Commodity Futures Trading Commission (CFTC)and is a member of the National Futures Association (NFA # 0339826) in the US, GAIN Capital UK Ltd is authorised and regulated by the Financial Conduct Authority (FCA) in the UK, GAIN Capital Australia Pty. Ltd is regulated by the Australian Securities and Investment Commission (ASIC) in Australia, and GAIN Capital Japan Co. Ltd is authorised and regulated by the Financial Services Agency (FSA) in Japan. Please read Characteristics and Risks of Standardized Options.

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