Silver shines as Santa rally takes hold for commodities

As the last day before Christmas and full week of 2017 for trading draws to a close, some interesting things are happening in the markets. Well, in some markets anyway! Bitcoin and other crypto currencies have tumbled across the board today while news that US tax reform bill has been signed into law by Donald Trump has failed to underpin stocks in the way some were hoping for. This is because the news was already priced in, but Santa could still make a late appearance. Like stocks, the dollar has been quiet – as too have been other major currencies amid the lack of any fresh news. But the crypto carnage has in part supported the appeal of the original, but not-so-exciting, alternative to fiat currencies: gold and silver. Both precious metals are on course to end higher for a second consecutive week and at the time of this writing they had almost turned positive on the month, too. Given the fact that gold’s previous lows were formed in the past two Decembers, the yellow metal could score a hat-trick if it maintains its rally in early 2018. But it is silver which is catching my attention today. Silver has benefited additionally from a strong rebound in other commodities and base metals, most notably crude oil and copper, with the latter being buoyed on renewed optimism about Chinese demand.

Silver could be forming a major low

As we wrote about the possibility on December 8, silver has bounced nicely off that noted $15.65-$15.85 support area. As a reminder, this was a key support range prior to the flash crash in July which saw the metal momentarily trade below this level. But the metal found strong demand as the buyers stepped in to take advantage of the flash crash. Before long, it was trading comfortably back above that $15.65-$15.85 support area again. So, given what happened here in the past, it was always interesting to observe silver’s price action after the most recent sell-off brought the metal’s price back to this area of support. Well, it has evidently attracted the buyers again as silver has bounced strongly from here. In addition to an old support and resistance area, the $15.65-$15.85 range is also where a bullish Fibonacci-based pattern called a Butterfly comes into play. The important point is that regardless of the technical reasons, what’s important is that it looks like silver has now carved out a short-term low, although it still needs a higher high above the $17.50 area to confirm the trend reversal. Still, given the short-term bullish price action, we are now expecting old resistance levels such as $16.25 to hold as support going forward. All that being said, any move back below the $15.65 level again and we would have to put our bullish views on hold. Indeed, silver will first need to get past the key short-term resistance around the $16.30/40 area before the bulls could get too excited. The metal was testing this area at the time of writing.