Silver prices are flat today in thus far quiet trade. Both silver and gold have seen some recent gains as shorts get squeezed out of the market and fresh buyers come into the market. Thus far, silver looks to be lagging gold a bit, although we suspect that could change in the very near future.
The economic data continues to be supportive for stocks and risk assets. Both the U.S. and Germany had PMI data released today. Both data sets were positive, with the U.S. reading coming out at a four month high while the German reading registered a five month high. Overall, data here in the U.S. has continued to be on the upswing. China however, is another story. There have been more signs of cracks in China’s economy recently.
A preliminary survey has shown that Chinese manufacturing slowed down in July. Just recently, the Chinese premier was quoted as saying that for China to meet its goal of doubling its economy this decade, it must maintain 7.5% growth. This growth target, along with the recent signs of weakness in Chinese data, have stoked hopes for additional Chinese stimulus.
The debate continues about when and how the Fed may begin its exit strategy. There are widely circulating reports now of the Fed tapering its bond purchases in September from $85 billion a month to $65 billion per month. What effect a move like this may have on markets is still unclear. It would seem however, that worries over China and the much more dovish tone taken by Bernanke and central banks in recent weeks is likely to help support silver prices.
The U.S. dollar index has been trending lower in recent trade, and this could also be supportive for the silver market. Another bullish factor for silver is the fact that crude oil prices remain elevated and are trading well over $100 per barrel. Should oil prices continue to climb, it could increase worries about inflationary pressures and thus people may look to buy silver as an inflationary hedge.
From a technical standpoint, the silver market is now in a short term bullish posture. The silver market has formed a horn pattern on the daily charts, and this could indicate more upside is in store. Silver is trading above its 20 day EMA, but has yet to challenge its 50 day EMA at the $21.09 area. We suspect we will see that level challenged soon. A victory by the bulls at that level would likely attract a lot more fresh buying into the market, and the potential for silver to spike rapidly to the $22-$23 level is very realistic.
This market update is provided weekly with analysis. You can always check current spot silver by watching our on-site charts.