Silver clears major hurdle

The pressure has been building for silver to explode higher in recent months and today it is finding itself up a good 2.8 per cent at $16.70 per troy ounce. The significantly weaker dollar has helped to underpin several buck-denominated precious metals and commodities of late, including gold, silver and crude oil. The US currency has depreciated because of receding expectations about interest rate rises this year. According to the Fed Fund Futures, the likelihood of a rate hike by December is now only 50 per cent. Other major central banks have also either turned more dovish or maintained their extremely loose policy stances. This has boosted the appeal of precious metals across the board since they are non-interest-bearing assets. In addition, Chinese demand fears have receded in recent times owing to an improvement in data. This has been especially helpful for silver, which, as well as being a precious mental, has several industrial uses, too.

What’s more, the relatively lower prices of silver compared to, say, gold, also appeal to some long-term investors who probably reckon that the downside is limited for the grey metal. Indeed, speculative interest in silver has been growing rapidly in recent times, as evidenced by strong inflows into silver-backed Exchange Traded Funds and rapidly rising net long positions in the futures and options markets. In fact, in the week to 12 April, net long positions in silver were increased by a good 30% to a record high 56,000 contracts, according to the CFTC.

While the upsurge in bullish positions suggest the correction potential is now high, the breakout of silver above the key resistance in the $16.10-$16.35 range means the rally could be sustained for some time yet (even if the momentum indicator RSI is also above the ‘overbought’ level of 70). Actually the breakout may even encourage some investors who had been sitting on the side-lines to join in now. Until and unless silver falls back below the now $16.15-$16.35 support range, the path of least resistance remains to the upside. As such, the metal can extend its gains towards the Fibonacci levels shown on the chart, such as the $17.00/10 area which corresponds with the 127.2% extension of the last significant downswing from October’s high to the recent low.


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. References to or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

The markets are moving. Stop missing out.