The silver market is under solid pressure today as the market falls to six year lows. Gold is also under pressure as stocks and the dollar index both move higher.
Stocks are attempting to rebound a bit today following heavy selling in recent sessions. The Dow Jones saw its biggest decline ever on Monday as panicked investors ran for the exits in droves as worries over China increased significantly. Chinese stocks saw massive selling during Monday’s session and thus far it appears that recent government measures implemented to calm Chinese equity markets may not be enough.
In yet another move made to try to install calm in Chinese markets and promote economic growth, the People’s Bank of China cut interest rates last night by 25 basis points.
The aggressive measures put in place in recent weeks are a cause for concern. The world’s second largest economy may see its slowest rate of growth this year since 1990. While these measures may help to stabilize markets, the aggressive nature of them may be indicative of the severity of the economic slowdown facing the country right now.
While gold has seen some more buying interest in recent days during the stock market turmoil, interest in silver has remained somewhat lackluster. This may be attributed to the fact that silver is not only driven by investment demand, but may also be highly affected by industrial demand.
Worries about the Chinese economy are generally bearish for the raw commodity sector and silver is no exception. With potentially less Chinese industrial demand for the white metal, the path of least resistance remains lower.
While it seemed as if the selling in silver may have run its course in recent weeks, recent developments could keep the market on the defensive for the foreseeable future. The chart damage inflicted on the silver market is significant and points to potentially lower prices even from current levels. Silver could potentially test the $13 or $12 per ounce area before all is said and done.
Safe-haven demand for precious metals could potentially keep the selling in silver a little more orderly. In addition, if the Federal Reserve decides to hold off on its initial rate hike, it could potentially weigh on the dollar and boost silver and gold.
For now, risk aversion remains extremely elevated and silver may potentially be liquidated along with stocks and other commodities. Margin calls in equity markets may also cause further selling in silver as investors look to raise cash. Should equity markets calm in the near-term, silver may potentially see some renewed bargain hunting and short covering. In addition, as more production is cut, silver may find some more buyers.