Gold: $1,289.04 -3.56
Silver: $17.09 -0.08
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October 1st Mid-Week Market Update
Article By: Rob Pacelli on October 01st, 2014

Silver prices are trading moderately higher this morning as stocks are once again experiencing some volatility. Although it may be too early to call a top in the stock market, some are likely really questioning the future of the bull market at this point. The increasing volatility seen in recent weeks could be another sign of a possible top. Markets can exhibit large swings and rising volatility as they undergo the topping or bottoming process.

If stocks are in fact running out of gas here, what does it mean for silver and precious metals? It is difficult to say. While silver may be catching a bid today, some of the buying is likely a result of shorts covering rather than fresh buyers entering the market. The equities markets have proven to be very resilient thus far in the face of geopolitical tensions. Conversely, the precious metals complex has not seen much buying interest even in light of current geopolitical tensions. This begs the question-what might it take for silver and metals to stage a sustainable rally?

The dollar index has also continued to weigh on silver and precious metals. Since breaking out to the upside several weeks ago, the dollar has exhibited a large amount of underlying strength and the rally in the greenback could have a significant amount of room to run to the upside. As long as the dollar rally continues, precious metals may continue to have a tough time getting anything meaningful going to the upside.

Markets today are digesting the release of the ADP employment report. This report showed an increase of 213,000 jobs which beat consensus estimates of 200,000 jobs added. Of course, markets are looking forward to Friday’s release of non-farm payrolls data for September. Consensus estimates are looking for an increase of 215,000 jobs with the unemployment rate steady at 6.1 percent. Given current volatility in equities, a miss on Friday’s report could potentially trigger a larger scale sell off in stocks and potentially benefit gold and silver as investors look to put money to work elsewhere.

The technical picture in silver remains bleak. The market is in a firm downtrend and has broken out to the downside from a descending triangle pattern that could potentially see prices work their way down to the $13.00 level. We would expect, however, to see a sizable relief rally at some point given the extreme bearish sentiment and steepness of the downtrend on the daily price charts. Silver will, however, remain a seller’s market until the bulls are able to prove otherwise. In order to start attracting some fresh buying, silver prices may have to climb back above the $18.50 level or so.