Silver prices are trading slightly lower this morning as equities are weaker, crude oil trades flat and the U.S. dollar index moves lower.
Silver has been seeing some buying interest this week as profit taking in the dollar index continues. The dollar has seen some weakness following last week’s FOMC announcement in which the central bank removed the word ‘patient” from its language. Although the Fed removed this adjective in its description of its views on rate hikes, Fed Chairwoman Janet Yellen did reiterate that although they removed the word it does not mean that the Fed will be “impatient” either. Markets appear to have taken this as a sign that the Fed will be cautious with regards to rate hikes. The central bank also discussed forward guidance in which the pace of rate increases is less than market expectations. This weakened the dollar and sent stocks higher.
Precious metals have reacted to the Fed’s commentary, and judging by recent price action in both gold and silver the bulls took the Fed’s comments to heart and perhaps now feel that the metals have been oversold. The notion of a slower pace of rate increases could potentially fuel more buying in precious metals in the coming weeks and months.
While the technical picture for silver is greatly improved in recent days, the bulls still have work to do. Silver prices have rallied sharply from the $15.50 level in recent days to the $17 area, and some back and fill trade will likely be seen in the near future. A move above the January highs in the $18.50 area could really get things going. Such a move could potentially attract additional fresh buying, and send prices over the $20 per ounce mark rapidly.
The silver market will continue to watch the dollar very closely. Further dollar weakness could also inspire the precious metals bulls, and given the amount of upside the dollar has seen in recent months, a sizable pullback is certainly a possibility.
Silver bulls will also monitor equity markets and data from China closely. Data coming out of China has shown some weakness, and the People’s Bank of China is open to additional stimulus measures. Should the data stream improve, or should China put additional stimulus measures in place, it could help fuel a sector wide commodity rally. Gold and silver could potentially benefit with significantly higher prices.
The ongoing negotiations between Greece and the EU could also fuel buying in the precious metals complex. Thus far, negotiations between the groups do not appear to have been productive, and as the end of the four month bailout extension approaches, the likelihood of a Greek exit from the EU increases unless significant progress is made.