Early in the trading session, it looked like the metals were finally catching a bid but late afternoon selling pressure brought prices back to near where they started the day. The spot price ended the day with a bid of $27.28 per ounce after trading as high as $27.73 earlier in the session.
The technical picture continues to show silver firmly within the bounds of a narrowing trading range with decreasing volatility on a daily chart. This will eventually lead to a breakout and that move will give traders a good indication of what direction to expect the metals to take over the next several weeks.
Over the last 45 days, the upside has been capped by the resistance of a descending trend line extending from the high put in place during the first week of June. There are several key areas of technical resistance including the 21-day moving average and the July (2012) high near $28.45. The bulls should look for a close above $28.50 for confirmation of a breakout.
Strong support enters the picture at $26.10 and a break below that level would indicate a high probability of a major move lower. In the absence of a clear market direction, investors should look to outside indicators that may offer clues as to which way commodities head.
Another outside influence is the trend in the U.S. dollar which is giving the appearance that its recent strength is beginning to wane. A weaker dollar has the potential to set up the metals for a rally if it persists.
Finally, the pressure is mounting for the Fed to implement another round of quantitative easing to stimulate a tepid U.S. economy ahead of the fall election. Never under estimate the political pressure the Federal Reserve will be under to take action and window-dress the appearance of the economy in an election year.
While there are several factors that point to the potential for a rally in metals, it is too early to forecast a move with any degree of certainty. To stay on top of market developments, keep an eye on today’s live silver prices and charts. For now, traders should wait for prices to break out of the recent trading range and then take positions based on the strength and direction of the move.
After a brief pullback earlier in the week, silver made a strong move to the upside in morning trading to advance from just below the $39 per ounce mark to over $40 by noon (New York time). Futures saw renewed buying interest after a short-lived bout of profit-taking during the morning hours. From a technical standpoint, traders can consider this a positive development as the correction tested recently formed levels of support and held nicely. The pullback helped to relieve what was beginning to look like a potential overbought scenario and turned it into a healthy consolidation that has the potential to set up the market for another leg to the upside.
If the price can clear the closing high of around $40.32 from June 17th, it could set the stage for a rapid advance to test the highs put in place during the final week of April. Regardless of whether that occurs ahead of the weekend, the market remains at the highest levels seen during the last 60 days. Commodity chart patterns that demonstrate a gradual move up and out of a base like what has occurred over the last two and a half months have a high historical probability of leading to higher prices in the future.
The biggest question the market needs an answer to over the next week to ten days is how the U.S. and European debt issues will be resolved. There is a growing consensus that a favorable resolution could tip the scales in favor of riskier asset classes like stocks over metals in the short-term. While the exit of safe-haven buyers may lead to a few buying opportunities, there appears to be plenty of uncertainty to keep new bids from entering the market on any dips in price. In the event that an agreement cannot be reached prior to the August 2nd deadline, confidence in the financial markets could be shaken for quite some time leading to a major run-up in the price of silver and gold.
On the demand side, the market seems to have priced in somewhat of a hard landing for the economy in China but signs are beginning to emerge that consumption of industrial metals such as gold, silver, and copper is actually increasing. Higher industrial demand is a trend that often pushes prices higher.
Typically, silver is a leading metal during a commodity bull market and the recent action in precious metals may offer some clues as to how the global debt crisis will eventually resolve. The financial markets have historically been an excellent predictor of future economic developments and there are no indications that any deviations from that standard are on the horizon.
Traders looking for an entry point can look for a buy signal to be generated on a close above $40.32. An initial protective stop could be placed below yesterday’s closing low around $39.30. Look for a price target of at least $42.25 on a breakout. Remember, retail traders in the United States are no longer able to trade precious metals on margin so alternative options such as the AGQ (ProShares Ultra Silver) are a great way to participate in the market. Be sure to check the main page for updated quotes and charts.
Spot prices opened the week with a breakout above the last major area of resistance from back in early May. The metal traded as high as $40.70 in the early part of the New York session before backing off slightly. Gold continued to show strength as well as investors rushed to precious metals in the face of growing concern over deteriorating debt problems in the United States and Europe. Gold touched a new record well above $1607 per ounce this morning before taking a slight breather.
While the overall technical pattern in silver looks very favorable for a continuation of the move to the upside, a short term consolidation period can be expected as the market is beginning to look somewhat extended. Relative strength is now moving into overbought territory so perhaps a pullback to test the new support at the breakout point around $39.30 could be in the cards. As long as this new level of support can hold, a rally upward towards the April high near $50 per ounce appears likely.
The metals may get a bit of a boost from institutional buyers as banks and larger funds move in to take advantage of artificially suppressed pricing resulting from the forced liquidation of leveraged U.S. retail trading accounts ahead of the Dodd-Frank legislation that took effect on Friday at the close. In addition, many of the traders and investors forced out of leveraged accounts may resume buying through alternative investment vehicles such as bullion, exchange traded funds, and mining stocks. Any activity of this kind could keep bids elevated as traders look to maintain long positions in a trend that appears to be gaining momentum.
Those who are looking to take a new position may want to consider the area between $39.30 and $39.50 as an attractive entry point. A trade at this level with a protective stop placed just below the May 25th high around $38.86 would provide a limited amount of risk with a very favorable reward ratio if the market rallies off recent support and eventually moves higher to test the $50 level. The trend in gold and silver prices remains bullish with both metals currently sitting well above the major moving averages. Remember that a reversion to the mean will occur at some point so it is never a good strategy to chase a commodity when it is extended. Wait for a pullback, and always use your stops to give any trade the best possible chance for success.