Silver is coming under some pressure once again today as gold approaches a five year low. Weakness in gold may weigh on silver, and if gold breaches its five year low around $1080, the selling may intensify further as sell stops are triggered and investors wait for even lower prices.
The precious metals complex is continuing to be plagued by a lack of bullish inputs. With the situation in Greece calmer — at least for now — and worries about Chinese markets abating, investors are focusing on market fundamentals including the upcoming rate hike, corporate earnings and the economic data stream.
The dollar index saw moderate selling pressure yesterday, but is now moving higher today. The greenback failed at the late May/early June highs, but may return to those levels rapidly. In fact, yesterday’s weakness may have been nothing more than a pullback on profit taking, and the dollar’s recent uptrend may still be very much intact.
This dollar strength is likely weighing on silver and gold significantly, and weakness in crude oil is not helping precious metals either.
Crude oil is trading below the $50 per barrel level this morning, in what could potentially be the beginning of another leg lower in prices. Should that prove to be the case, silver and gold may have a tough time finding any real footing.
While physical demand for silver has remained robust, investors may elect to wait for further price declines. A break below silver’s most recent swing low around $14.62 could potentially see prices approach the December 2014 lows around $14.10. Trade below this level could potentially see a significant move lower in the silver market, with prices potentially approaching the $10 per ounce level.
In the current environment of higher stocks, a stronger dollar and weaker crude oil, it is difficult to justify any real bullishness — especially given the fact that rates are about to start moving up.
The precious metals do appear to be oversold on a short-term basis, however, and may see a significant bounce in the near future. Unless something changes, however, any sizable rallies in silver will likely be sold into until proven otherwise.
Silver may see selling pressure subside, however, if physical demand remains strong or increases. The recent sell out of American eagles at the U.S. Mint may be a good indication that investors see silver as a bargain at current levels, and wish to get as much as they can.
For now, however, the path of least resistance appears to be lower.