Well what a week or so it has been for silver prices! Silver has covered a lot of ground to the upside in a short period of time, and although we expect more upside we would not be at all surprised to see the market take a breather at some point in the very near future.As a matter of fact, silver has tested its 200 day EMA today around the $25 level and as of this post is backing off. Again, this comes as no surprise to us and some back and fill price action in silver will only help drive the next potential leg higher.
It is important to note that silver traded as low as just over the $19 mark earlier this month. Prices have moved nearly $5 per ounce in three weeks without any significant pullbacks. There are a number of factors driving silver and precious metals right now:
The Fed-The Fed has indicated that tapering is right around the corner. maybe next month , maybe not but by year’s end. The question is will some of the recent soft data and the potential for military conflict with Syria derail the Fed’;s tapering plans? Clearly there is some confusion out there regarding this issue. In addition, bets are being made as to who will replace Ben Bernanke as Fed chief. Clearly different choices could have very different ideas for monetary policy and thus this unknown is adding to the uncertainty.
Syria-The potential for a U.S.engagement with Syria is frightening and very real. Syria itself is not a major oil producer however, their close ally Iran is. This begs the question of how does Iran react to U.S. strikes against Syria? Obviously the potential for oil supply disruptions is real as well and the fear premium in oil continues to grow. The other issue is Russia, and military action could further strain already delicate U.S./Russian relations. Clearly the precious metals seem to be benefiting from a flight to safety mentality amongst investors currently.
Stocks-Stocks continue to slide form their highs, and there is more worry of a larger correction in the works. While this may or may not materialize, investors seem keen on buying precious metals given the uncertainty surrounding markets currently. Should the situation with Syria calm down or start to be worked out through diplomatic channels and not violence, we could see stocks start to rebound a bit and this could give buyers in metals reason to book some profits.
We will continue to watch the $25 level as overhead resistance here in silver, and we do expect that this market has now become a “Buy the dips” market. Should prices go back below the $22.30 level it is likely that silver could head back to its previous trading range in the $20 area.