Silver Futures perhaps ready for another leg up?
Twenty-five years ago, Silver had led the Gold Market as far as popularity and demand! To go back further, the Hunt Brothers had given the Silver Market a story line and drama to boost the metal. Today, the Gold is clearly leading the Silver! They are both currency and industrial, but the Silver had been regarded as the poor man’s gold. The metals clearly are tied to the emotion of the market. The uncertainty and anxiety causes the precious metals to advance and the confidence in the global economy leads the investors back into the stocks and stock indices.
The allocations shift according to market sentiment. As of late, we are showing no increase in jobs creation. There are more individuals applying for unemployment insurance and the manufacturing sector had been slack. Federal Chairman Ben Bernanke has stated in his speech that the Federal Reserve will do what it can to boost growth and the employment. Without describing a plan to map out the tools that may be used to pump up a sluggish economy, it left investors disappointed. President Obama speaks this evening on his plan for jobs creation and potential tax cuts perhaps adopting plans to repair roads and bridges as well may instill some confidence. After four years in office, the plans may be construed as a platform for the next election. Regardless, the Silver may possibly benefit from the horrendous global conundrum. India is approaching their wedding season and it is thought that they may desire the bars as opposed to jewelry. In times where the Gold may be too costly, they may purchase Silver.
Asian demand is strong as the banks often are the dealers for the metals buyers. Some time ago their bankers were told to warn investors of the volatility of the Silver Market. Asia may have disclaimers, but the popularity of the metals may in fact override any concerns of the investment community. The Shanghai Exchange, China’s largest Gold exchange, are raising the margin requirements on their Gold and Silver Forward contracts to try to tap the volatility. They also have set the daily limits to adjust to the global marketplace. The Chinese exchanges are closed September 10-12 for their Mid-Autumn Festival. The margins in the US have increased for the metals as well. When the margin for Silver had initially been raised to $27,000.00, it was thought of perhaps a manipulation to drive investors back into the US Dollar.
The US Dollar and the precious metals typically are inverse in their movement. There are cases where the US Dollar, Treasuries and Precious Metals move in tandem. That is where the fear and anxiety have investors fleeing the stock indices for the safe-haven products. In reality, the precious metals are commodities that have the risk elements of any other commodity market. To look at a 20 year chart, one would see the resilience of the metals and the increase in value over time. The global financial state of economy is advanced to a stage where it will be difficult to restore confidence in the near-term. The metals may retrace in proportion to their moves up, but still may continue further to new highs.
Technically speaking!
The December Silver contract had hit a high of $49.81 and just seemed to back off of the $50.00 target that many analysts had touted! We have retraced and perhaps are ready for another leg up! There may be overhead resistance at $43.35. The pennant formation often may signal a sharp move after that quiet flat lull. Note the trend line has not been breached.
Silver Chart
We look for support at $40.34 and we see this market in sell mode temporarily! Look for entries to buy on the dips below $41.00 and trail the stops. One may look at a Bull Call Spread or Call Option to keep a check on the potential risk. It is suggested to always keep a stop-loss on a position immediately after it is entered. It is also suggested to stay alert and focus to stay Silver Savvy!
Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
