Silver prices are trading slightly higher this morning while gold trades just below the flat line. To see these markets take a bit of a breather after recent price action should come as no surprise. Silver has been climbing steadily the last few sessions, and has cleared its 9 and 20 day EMA’s. This could set the stage for a test of the 50 day EMA in the $20.87 area.
Markets continue to be data driven, and are awaiting further inputs. Yesterday, U.S. lawmakers reached a budget deal that should prevent another government shutdown. This was unexpected, but markets do not appear to be paying much attention to it. There is very little in the way of data set for release today, in fact, the whole week is relatively light in terms of data. Investors will await tomorrow’s numbers as markets will get the latest readings on retail sales, weekly jobless claims, business inventories and import and export prices. While these data points could potentially be market moving, it is unlikely that there will be much reaction. Investors are focused on next week’s FOMC meeting. The notion of whether the Fed will taper or not next week will likely remain the center of attention until then.
The U.S. dollar has continued to trend lower in recent sessions, and this could provide further support for silver. Of course, the dollar’s future remains up in the air as well as currency traders await next week’s FOMC decision as well. If there is a taper, the dollar could rally sharply and pressure silver prices in the process. If the Fed continues to hold off however, the dollar could continue its recent slide and thus pave the way for further potential upside in silver prices.
In other outside markets, crude oil has been moving higher in recent sessions as well and is approaching the $100 per barrel mark. Stronger crude can potentially be supportive for silver however, it remains to be seen whether or not crude oil can justify and maintain prices over $100 per barrel. It is likely that silver investors will be paying close attention to oil in the coming days to see if the rally has further legs or not.
While silver has looked quite strong in recent days, a large portion of that strength may be attributed to short covering. The real test for silver will come next week after the Fed. If silver can rally even with the Fed tapering it could be a good sign of underlying strength. If silver falls apart however, the market may be in a position to head lower once again and decidedly take out the recent lows. This could potentially take prices down near the 200 day EMA at the $15.86 level.