Silver is trading slightly lower this morning as the market is taking a pause following two solid days of gains. Silver futures for March delivery are currently trading at $29.16 down $.10 on the session.
Precious metals prices have been boosted lately not only by bargain hunting but also very likely by a strong short-covering rally. It certainly appeared that prior to the metal’s rebound over the last couple of days, market participants-especially the smaller speculators, had gotten a little too short the metals. The type of price action seen over the last two days is indicative of those positions being unwound as traders caught short are forced to buy in order to flatten their positions.
Bullishly for silver and gold, Fed Chief Ben Bernanke testified that the Fed’s accomodative policy will remain in place for the foreseeable future. Market participants were left dazed and confused following the Fed’s release last Wednesday of the minutes of their January meeting. In a nut-shell, their seemed to be growing concern amongst Fed members as to the risks involved with ongoing asset purchases.
In addition, and perhaps more troubling, was the fact that the Fed did not seem to be unified to any degree regarding how to proceed in the eventual removal of stimulus. It appears that Bernanke’s testimony this week has quelled some of those fears. Bernanke will now be speaking before a house of Representatives committee today.
Perhaps bullish for Silver and gold will also be the prospects of another Italian election. The idea of Silvio Berlusconi winning the election certainly has markets on edge. Should he regain power in Italy, it could have dramatic consequences for the Euro currency as his party is anti-austerity.
This in turn could have a ripple effect through world markets. This notion of this playing out could potentially be very bullish for metals as it is likely a flight to quality mindset would enter the markets and perceived safety instruments bought in lieu of riskier assets.
Chart by QST
From a technical standpoint silver still has considerable work to do to undo the recent technical damage it has suffered. While the daily trend is down, the metals, and silver specifically, are notorious for major reversals that are rapid and powerful in terms of price. Should silver continue to push higher, it could cause more caught short to scramble and cover thus propelling prices even higher.
In the near term, silver needs to close above technical resistance at the $30 level. The 50% retracement of the recent down move also happens to come in around $30.09. Finally, the 20 period exponential moving average (EMA) comes in around this level as well. Should the market be able to clear these areas to the upside on a closing basis, it would open the door to prices targeting the $30.75 area in short order.
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