Silver Still Holds for now

Unlike gold, silver continues to remain supported above its four-year trendline, which it has probed for the past three weeks. Nonetheless, gold remains above its 100-week MA since December 2008, while silver has broken below its own 100-WMA. In fact, silver has fallen below all key moving averages (55, 100 & 200 DMAs & WMAs).

According to the gold/silver ratio, silver has fallen 21% relative to gold since March. Since April 2011, silver dropped by over 80 against the yellow metal.

Speculative net longs in silver in the Comex exchange edged up to 9,706 contracts last week from the 9-year low of 6,222 contracts reached in late June. Meanwhile, gold speculative interest dipped to 4-year lows in early June at 110,712 contracts, before rebounding to 137,000 contracts.

The fate of both metals remain largely dependent upon the policies of the Federal Reserve. There is some speculation that the Fed may deliver a third round of quantitative easing this year, before the current Operation Twist is concluded. Such an act would be an usual sign of desperation by the central bank, yet the only viable means for gold and silver to have any realistic chances of a rebound back to 1700 and 32.00s.

The diverging signs of global macro slowing are increasingly apparent, especially as they emerge from China and the US, both long seen as the remaining effective cylinders of the world economy. Coordinated easing policies from the major central banks are already under way, while metrics of “fear” in global markets remain relatively acquiesced. Yet, there will come a time when these gauges of risk appetite begin to escalate at the ever clear realization of diminished returns from liquidity injections. Unlike in 2008/09, when zero interest rates were considered to be shock-&-awe, today they are the new normal. But the converging macro deterioration is “anything but”.

With the aforementioned picture, the Fed’s Operation Twist shall not be enough. It is already proving to be this way. And if matters stay this way, silver will eventually break below the 4-year trendline, retest the triple lows of 26.00. This would give way to the next landmark figure at the 200-WMA, currently at 23.40.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.