Silver prices are stronger today as stocks are once again under significant pressure while crude oil and the dollar trade near the unchanged mark.
While equity markets had been looking as if they may begin to stabilize, selling in equities has picked up throughout the day today as risk aversion once again takes hold. Stock investors are watching Chinese markets closely and the crude oil market continues to drive investor angst.
The combination of lower oil and uncertainty surrounding China has driven significant selling in equities to begin the new year. While the reaction could be overdone, the stock market could be in for further downside if current trends continue.
Markets saw a similar selloff back in August and September only to come roaring back. While this is certainly a possibility this time around, markets seem to have even more to worry about.
While China and crude oil have largely dominated the headlines, there are other factors at play as well that could potentially fuel stock selling and drive buying in perceived safe havens such as precious metals. North Korea reportedly tested a hydrogen bomb recently and tensions in the Middle East remain elevated.
In addition, divergences between U.S. monetary policy and other nations such as China and the ECB could potentially cause increasing volatility not only in stocks but currencies and interest rates, as well.
The Fed Beige Book released this afternoon showed a mixed picture of economic activity. The report showed improvements in the labor market and consumer spending were offset by a stronger dollar and weaker crude oil. For the most part, economic data was largely considered to be flat to moderate.
Volatility being seen once again today may be driving some sort covering in silver and gold. Silver fell back below the $14 per ounce mark again in recent trade but rallied sharply today to finish firmly above $14 per ounce. Silver has tested its recent lows multiple times now yet has thus far failed to make a fresh leg lower. Silver investors may take a wait and see approach as uncertainty surround the pace and timing of further interest rate hikes remains.
A clean break above the $14.40 level in silver could potentially ignite fresh buying interest and an eventual run back to the breakdown point of $15.60 could potentially be seen. Of course, silver could also maintain its recent trading range as investors await more clarity from the Fed. Stocks, currencies and overall risk appetite or aversion will likely be the primary drivers of silver in the coming weeks. While further declines in equities could potentially fuel safe haven buying in silver, an equity market rebound could also potentially fuel fresh selling in the market and a fresh leg lower in price.