We have been seeing something of a retracement of the silver price over the last week or so, but with inflation numbers looking high and further disruption from the new coronavirus variant looking likely, we reckon silver bulls should not despair. Silver futures had been pushing the $25.75 resistance level all week, but have sold off considerably in recent days, currently trading at $22.89.
Much of this can be attributed to the recent news of the spread of the Omicron virus in southern Africa and now further afield. Silver had been in rally mood since late September, but this latest crisis seems to be taking the wind out of its sails a little. We had been seeing some considerable buying earlier in the month which we attribute to inflation concerns more than anything else.
March silver futures hit six week low
It’s a six week low for the March silver futures contract. Short term price action also seems to be driven by the higher move in the dollar and a decline in US Treasury yields.
Medium term momentum for silver has turned negative as the MACD has generated a crossover sell signal. Prices are looking a little oversold however, if you reference the fast stochastic, which is printing a reading of 1 (below the oversold trigger correction of 20).
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It is going to be an interesting week of trading for commodity markets, as this could be a test for a number of theses, including arguments from some quarters that inflation has peaked. It’s all about the COVID at the moment – markets, including silver, are getting conflicting information from various sources. While doctors on the ground in South Africa say the new variant is relatively mild, vaccine makers are still worried that it may get past the existing range of vaccines being rolled out.
Further disruption could create safe haven demand
Further disruption from the virus will play into the hands of safe haven assets like gold and silver. The lower resistance level for silver right now is around the September lows of 21.42.
The longer term case for silver is still in place. It is now well above $18 and showing no sign of returning there. We are not convinced that inflation is going to drop anytime soon, and once the market is more persuaded of this, we anticipate further bull cycles in the metal. Short term selling is being driven by a general aura of panic on trading floors from market participants who were convinced they had seen the back of COVID.
Can silver get back to $28?
Silver saw its first big gain as it rallied past the key $18 level in June 2020, peaking at a recent high of just over $28. This was the pandemic-inspired, post-crisis rally. The key number to watch for now is that September low, but the news flow from the virus is back in control now, so expect plenty of volatility in the March contract this week.
Volumes on both sides of the trade are high, demonstrating that traders are revisiting their silver positions. We anticipate higher than normal volatility this week in the futures and CFDs market.