Silver prices are under pressure once again today as ongoing U.S. dollar index strength continues to take its toll on precious metals. Investors have seen the euro currency plunge this week, and the dollar is trading at twelve year highs. The dollar index crossed the $100 mark earlier today before backing off likely due to profit taking.
Investors showed some nervousness yesterday regarding the dollar strength, and stocks sold off on those worries. Investors appear to be concerned about the rapid ascent of the dollar, in addition to ongoing worries about the health of the EU. Add to this the likelihood of the Fed raising rates in June, and you have a potential recipe for lower risk assets.
The euro has been falling steadily and swiftly as concerns over a Greek exit continue to weigh on investor sentiment. Although Greece was granted a four month extension of its current bailout package, significant progress in talks between the country and its creditors has thus far not been seen. Many now seem to believe that a Greek exit from the shared currency is inevitable. The question is-how would this affect global financial markets?
Until there is more clarity surrounding the situation, the dollar may remain well bid and may stand in the way of any potential rally in silver prices.
Markets currently have a great deal of issues to content with-and silver is no exception. While silver may be purchased during times of uncertainty, this type of buying has thus far been largely absent. Silver is, in fact, back near multi-year lows and is in danger of seeing another significant leg lower in price. The possibility of $12.50 silver cannot be ruled out if the bulls are not able to hold the lows seen earlier this year.
Lower stocks could potentially be silver’s saving grace, however. With bond yields still extremely low, should investors begin to exit the equity markets the precious metals complex could potentially see renewed buying interest.
Unfortunately, for the time being, investors are getting many different messages-and some of these are very mixed. While the U.S. is getting ready to raise rates, the EU and some other countries are cutting rates. Economic data out of China remains rocky, and there is no clear picture on what a Greek exit could potentially mean for world markets.
The next few sessions for silver should be very telling. A stand here by the bulls could potentially ignite a rally, while a clean break below this year’s lows sets the stage for a large potential drop. Investors will be watching the greenback closely, and should it continue to climb in its current fashion, there could potentially be widespread selling among several asset classes.