The silver market is quiet in early trade as investors await the release of the FOMC minutes this afternoon. Today’s Fed meeting minutes will likely be closely scrutinized by investors following last week’s solid non-farm payrolls report. The jobs data has likely caused even more of a split between camps with regards to the timing of interest rate hikes. Many still believe that the Fed will likely begin the tightening cycle sometime in the middle of next year. Others believe that a hike could come sooner while some also believe that we are still a long way off from rising rates. Some even feel that the Fed will be forced to roll out more stimulus in the future. Today’s minutes may give clues as to the Fed’s assessment of economic conditions as well as their plans.
Both silver and gold remain on the defensive as the dollar index stays elevated and the notion of rising rates sets in further. Demand for silver has not picked up the way some had anticipated at current levels, and we may see additional downside before the market finds more willing buyers. From a technical standpoint, the silver market could in fact have considerable downside remaining. The market broke down out of a descending triangle pattern that could potentially see prices drop to the $13 per ounce area. Of course, technical patterns can and do fail but it is worth noting.
Market veteran and Dow theory newsletter writer Richard Russell had some interesting things to say about silver and gold recently. Mr. Russell stated “Currently, the world is beset by a multitude of emergencies. The water shortage and the change in the earth’s climate along with the disasters of ebola and ISIS must be solved. As a rule, we don’t address problems until they become emergencies. My belief is that in the coming years, we will address all potential disasters and emergencies.” Mr. Russell also stated “I believe this is the time to invest in gold and silver if you have not done so already.” This comes from a man with a long-term established track record in market forecasting. Is he right? Only time will tell but he makes some very valid points.
Stocks are continuing to exhibit increasing volatility and one has to start wondering if the market is topping out. It is simply too early to tell if this is simply a dip that will be bought or the start of something more serious. Should stocks continue to grow weaker, however, silver could potentially benefit. In addition, silver, like gold, seems to have reached a bearish extreme. This extreme level of bearishness could potentially lead to a large rally if shorts get squeezed and investors begin looking to reallocate.