Silver prices are under a bit of pressure this morning as better-than-expected data continues to bolster the case for more tapering by the Fed and also gives the US Dollar index a boost.
This morning, the ADP employment report showed a gain of 238,000 jobs while consensus estimates were for a gain of 205,000. This is a big beat in terms of the number, and will likely add to expectations for Friday’s key non-farm payrolls data. The data stream continues to show improvement, and the economy appears to be gaining some traction at this point. The Fed minutes are set to be released later this afternoon, and investors will be anxious to hear the Fed’s assessment of economic activity at this point. Not only will investors be looking for clues about the Fed’s opinion on the economy, but they will in turn be interested in hearing any additional commentary the Fed may offer on its tapering plans. The Fed has a difficult task at hand to say the least. If stimulus is removed too fast, the economy could begin to sputter. At the same time, if the Fed does not take action there could be inflationary risks down the road. It will be interesting to see how the Fed tries to mop up liquidity, and the markets will be paying attention.
In addition to the Fed minutes today and the non-farm payrolls data on Friday, markets will also be watching economic data coming out of China this week as well as any headlines from the ECB and BOE meetings tomorrow.
Silver continues to have a hard time putting together a sustainable rally. Prices have been relatively range bound from $19 to $20.50 over the last several weeks. Although silver appears to have some decent support at current levels, the fact that it cannot seem to rally above the recent highs may be a cause for concern. Can it go lower? Absolutely. Will it? We don’t know anymore than you. Physical buying at current levels has been OK but at some point may get a bit tired. Should that happen, then silver could breakdown and start another leg lower. $18 silver or even $16 silver is a distinct possibility. On the other hand, if the bulls can stage an upside breakout, then silver prices could run to the $22 level very quickly on fresh buying and short covering. Which way silver eventually breaks is likely a matter of the data stream and how stocks continue to perform as well as how the dollar holds up. Another likely scenario for silver is that we could be seeing a market that has found some near term equilibrium and stays range bound for the foreseeable future.