Silver prices continue to not show any meaningful reaction to the ongoing U.S. Government shutdown and looming debt ceiling. Political leaders are taking the issue right down to the wire, but thus far we have not seen panic set into global financial markets. Investors appear to be continuing to operate under the assumption that a last minute deal will be struck to avoid a U.S. default.
With talks ongoing today, it will be interesting to see how markets react if some type of agreement is not reached by the end of the day. Markets will be closely watching the headlines today for any signs of progress. Price action today could become volatile and erratic as the deadline quickly approaches. On Tuesday, Fitch ratings agency placed U.S. debt on negative watch, and essentially looks ready to downgrade the U.S. credit rating if no agreement is reached. A downgrade of U.S. debt can have some serious consequences, and let’s all hope that it can be avoided.
As of this post, stocks are still flying high today as the expectation for an eleventh hour deal remains strong. Interest rates are slightly higher today while the U.S. dollar index is trading slightly lower thus far. Silver and gold are slightly higher as some short covering takes place and some fresh longs enter the market. The precious metals almost appear to be in a holding pattern ahead of further news today.
It is worth noting that the precious metals complex is not behaving the same way it did in 2011 when the debt ceiling was in danger of being hit. While things can certainly turn on a dime, we would expect to see a bit more bullish posturing from the metals here. The metals however, are in wait and see mode and that will be the case until we get some further clarification on the debt ceiling.
From a technical standpoint, the silver bulls remain on the defensive. The silver market remains in a firm downtrend on the daily charts, and while a U.S. default could trigger significantly higher prices, a last minute deal being reached could cause silver prices to break support and do another leg lower. Silver dipped down to the $20.50 area yesterday but appeared to be bought at that level.
It is worth noting that silver closed far from the low and that there was a big increase in volume. This could be indicative of bigger players buying silver on the dip. We will continue to watch yesterday’s lows in silver as a potential support area and this week’s highs as resistance. The $22 area also appears to be significant overhead resistance and must be breached in order for the bulls to really gather some momentum.