Silver prices are trading moderately lower this morning as stocks are set to open flat. The stock market has made a large V bottom on the daily charts, and volatility has come in. If stocks can maintain solid footing once again after last week’s washout, then perceived safe haven assets such as gold and silver may come under renewed pressure. Some market analysts are already suggesting that last week’s low was the stock market bottom for the rest of the year. It seems all is rosy again but one has to wonder if it will last. The bond markets are telling a different story as interest rates have fallen and demand for government debt remains robust.
After hitting lows in the $16.60 area recently, silver prices have been trending higher. This corrective rally in silver may be coming to an end, however. The market has not been able to cover a lot of ground to the upside, and has failed to make a series of higher highs. The silver market may simply be consolidating before the next leg lower. $15 per ounce silver remains a distinct possibility in the coming weeks and months. the bulls have a lot more to prove in order to attract any significant fresh buying interest.
After pulling back slightly in recent weeks, the U.S. dollar index appears poised for another run at its recent highs. This dollar strength is being driven by economic optimism here in the U.S. but also by weakness in the Euro zone. This dollar strength is likely playing a significant role in silver’s inability to put together a sizable rally thus far. The dollar has also been driven by the notion of rising interest rates. In recent comments, however, the Fed has sounded a lot more dovish and rates may stay low for some time still. This would make sense given some of the economic risks being seen currently and the weakness in European economies.
While the Fed’s recent dovish attitude could be construed as being bullish for silver and precious metals, it also appears that market participants see the writing on the wall. Higher rates are coming-maybe not today, maybe not next week or next month, but at some point the Fed will begin the tightening process. How this will affect silver no one knows for sure. It would seem, however, that the path of least resistance for silver remains lower as the market is simply lacking any real bullish catalyst. Silver investors will likely continue to monitor equity markets and economic data for any signs of weakness. Until significant weakness is seen, precious metals may remain on the defensive.