By – Blackwell Global
Silver could be setting up for another near-term slip prior to resuming its long-term bullish trend as this week progresses. Specifically, the metal is fast approaching a probable point of infection around the 19.090 level which could subsequently see silver descend to the 17.849 mark. However, keep an eye on the US Employment data as any unexpected weakness in the figures could see bullishness resume earlier than anticipated.
As shown below, silver has remained within the confines of a Schiff pitchfork throughout August and this structure should remain intact for some time yet. As a result, it is expected that the metal trends lower in the near-term, this being said, exactly when it reverses is less obvious. Fortunately, there are a number of technical indicators which are singling that the 19.090 mark should prove itself to be a point of infection.
Firstly, at its current trajectory, the metal should encounter resistance from an intersection of one of the Schiff Pitchfork levels and the 38.2% Fibonacci retracement level. This intersection occurs at the 19.090 level and, consequently, it is expected that resistance will remain unbroken here. Additionally, atthis point the 100 period EMA on the H4 chart will be exerting some downward pressure which should likewise encourage a reversal.
After making a reversal, silver should remain in decline and follow the pitchfork down to around the 17.849 level. Much like the 19.090 level, the reason that this price should prove to be a reversal point is twofold. Primarily,it represents the intersection of both the long-term bullish trend line and the central tendency of the pitchfork structure. Secondly, this price represents the 61.8% Fibonacci retracement which should intensify support around the 17.849 mark.
From a fundamental perspective, there is significant scope for some major interference courtesy of the bevy of US employment data due this week. Much like gold, silver enjoys the benefits of being a safe -haven investment, meaning its price generally spikes alongside market fear. Therefore, should the impending US Employment data fall short of forecasts, we could see silver push through the 19.090 price despite the technical bias.
Ultimately, keep an eye on these fundamentals this week, especially the US Unemployment Rate, as they could upset this technical manoeuvre. However, in the absence of any significant shortcomings in the US data, silver should have some substantial downside potential in the coming weeks. This being said, the long-term bias remains bullish so don’t expect to see the metal stray far below the 17.849 mark.
With the US dollar firming up following hawkish commentary from the Fed on Friday, and strong payroll numbers expected later this week, the iShares Silver Trust ETF (NYSE:SLV) looks primed for a continued pullback.
Fed chair Janet Yellen said late last week that the case for raising interest rates had gained steam as of late. Still, the speech was slammed by many market pundits, including “bond king” Bill Gross, who are still calling the Fed’s continued “rates rising” bluff.
Higher rates would mean a stronger dollar, which in turn would slam the value of precious metals like silver. As the U.S. dollar’s value increases versus foreign currencies, the price of silver falls in U.S. dollar terms.
Rising rates could also entice more investors into the bond market, lured by higher yields. Silver has been a popular option this year partially because yields around the globe are so low.
Fed member Stanley Fischer noted that this Friday’s jobs report could push the Fed over the brink in terms of normalizing monetary policy. That report will be delivered Friday at 8:30 am ET, and employers are forecast to have added 175,000 workers to payrolls in August. The unemployment rate is expected to edge down slightly, to 4.8% in August from 4.9% in July.
Market-implied rate hike odds are rising to multi-month highs as a result.
Investors have also preferred gold to silver this month in a big way. Gold’s premium over silver currently sits around 70.88, up from 66.00 at the start of the month. This ratio means that an ounce gold is worth 70.88 ounces of silver, suggesting that the yellow metal will continue to outperform the gray metal in coming months (whereas in the first six months of the year, the opposite was true).
SLV shares fell $0.04 (-0.23%) to $17.68 in morning trading Monday. The largest ETF tied to the spot price of silver has still risen 34% year-to-date, despite a recent 10% correction from its yearly high.
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