Silver prices are moving slightly higher here in early trading. There does not appear to be much interest in the precious metals complex at this point, however, and the metals may very well be taking a breather before heading on another leg lower. While we would expect some short covering to take place here and there, and the market will likely see some bounces, the silver market simply continues to lack any type of significant bullish catalyst to send prices on a meaningful trajectory higher.
This week is very rich from a data perspective. Markets have already gotten to digest factory orders, PMI manufacturing, construction spending and ISM manufacturing as well as ISM non-manufacturing. Nothing has been really market moving today, and it is quite likely that markets are waiting for Friday’s non-farm payrolls data for May before making any big moves. The ADP jobs report this morning did, however, show the slowest private sector jobs growth in four months. In addition, the highly anticipated ECB meeting is tomorrow and it is widely expected that the central bank will act in order to fight a slowing economy and deflationary pressures. This could obviously have a large impact on the Euro and therefore the dollar, and could potentially pressure silver and gold if the dollar continues to strengthen.
The precious metals simply do not have much working in their favor right now. Stocks continue to march higher and investors continue to remain hungry for risk. While the equities market is looking a little tired at this point, there is no telling when the rally may end. It does seem, however, that the metals complex may struggle until that time. The Fed is likely to stay the course on reducing its bond buying program as well, and although rates may stay low for some time to come, it seems that many precious metals investors see the writing on the wall.
From a technical standpoint, the silver bears are in firm control of the market. Now that support in the $19 area has been broken, the doors are open for further downside. The market could potentially be setting up for a retest of the June lows from last summer down near the $18 level. While we would expect this level to hold, a breach could potentially send silver prices significantly lower and the $15 level would not be out of the realm of possibility.
The divergence between crude oil and precious metals is interesting and worth noting. Higher crude could potentially help support silver in the coming weeks and months. Should crude start to back off again, it could help fuel further downside.