The price action seen in silver recently has been what some may describe as “dull.” The metal has thus far not been able to take out overhead resistance in the $22 area even with geopolitical tensions continuing to mount. The gold and silver bulls are looking a bit tired here-and the fact that the metals have not been able to extend further to the upside given the possibility of escalating tensions in Ukraine may be cause for concern.
This past week Russia has annexed the Crimea region of Ukraine following Sunday’s vote by Crimea to secede from Ukraine. Thus far, there is a lot of tough talk with regards to economic sanctions and penalties that may be faced by Russia. Violence, however, has thus far not reared its ugly head-at least not in any widespread manner. Perhaps this is why stocks have continued higher while “risk-off” assets have not done much. It goes without saying that this situation could escalate at any time, however, and investors will continue to monitor it closely.
Precious metals investors will also continue to watch any developments in China as concerns over the soundness of the Chinese economy along with the potential for additional bond defaults mounts. Recent weakness in Chinese economic data could potentially impact world markets a great deal, and stocks could potentially sell off on further weakness in China. Being a huge consumer of precious metals as well, a further slow down in China could potentially drag precious metals down along with other risk assets as demand possibly wanes.
This afternoon saw the latest FOMC meeting announcement. Janet Yellen and the Fed are staying the course it seems. The Fed tapered its bond purchase by another $10 billion per month-the third straight meeting in which it has done so. This was not at all unexpected. What was unexpected, however, was Yellen’s remarks regarding rate hikes. The Chairwoman indicated that the first rate hike could come within six months of when the Fed is done with its bond buying program. This means that markets could see a rate hike as soon as spring of 2015 which is sooner than has been expected. In addition, the Fed alluded to the fact that rates could potentially rise at a faster rate than was previously expected. These comments sent stocks lower, and gold and silver even lower as well. It is too soon to say what this means for silver prices going forward, but the idea of rising rates, a potentially rising dollar and inflation continuing to remain well in check could certainly be considered bearish by some investors.
Silver will face a key technical test here in the coming sessions, as it retests its previous trading range breakout level in the $20.50 area. If silver cannot hold this level, the market may reenter the previous trading range and potentially trade sideways to lower for some time.