Silver prices are trading close to the flat line on Wednesday morning as stocks move higher again today, the dollar trades up and gold trades slightly lower. This is a fairly light week data-wise here in the US, and markets are focused on multiple other issues such as Ukraine and the potential for further slowing in China.
The situation in Ukraine remains a large concern but thus far the situation has not escalated from a violence standpoint. Markets appear to be continuing to shrug off the potential for further escalation in Ukraine, although this could certainly change quickly. One has to wonder just how long Russia can withstand current economic sanctions and the possibility of additional sanctions to come. Judging by the recent price action in gold, silver and stocks, markets thus far do not appear terribly concerned about the ongoing situation.
The slowdown in China remains a cause for concern. As the world’s second largest economy, any further weakness in China could potentially undermine global economic activity. As one of the world’s biggest consumers of silver and precious metals, the notion of further weakness in China could also potentially slow buying in precious metals and thus depress prices. Many are now wondering whether or not the Chinese government will take action in order to boost the Chinese economy through some type of stimulus. In addition to the potential for stimulus from the Chinese government, investors are also wondering if the ECB will take action in the near future in order to fight deflation. Any central bank action could potentially give silver and precious metals a boost.
Silver prices from a technical standpoint have seen better days. After staging what seemed to be a legitimate upside breakout in mid-February, silver was not able to generate adequate follow through. In fact, silver prices topped out just over the $22 level and never looked back. Now it is not uncommon for a market to stage a breakout up or down and then go back and retest that breakout level. In the case of silver, this level was in the $20.50 area. The market did not put up much of a fight at this level, however, and silver appears to be quite comfortable back in its previous trading range.
The question now becomes whether or not silver stages a downside breakout out of the previous range. A clean break below the $19 level could indicate another leg lower in silver prices. Time will tell, but with the Fed sounding a bit less dovish lately and risk appetites remaining robust, precious metals may continue to see some selling pressure for the foreseeable future.