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Silver Market No Longer Looks Awful As Prices Push To 200-DMA

(Kitco News) - Silver prices are once again making headlines but this time it’s positive news that is attracting the market attention and shifting sentiment.

Comex December silver has rallied for three consecutive sessions and Tuesday pushed to its highest level since June 23, hitting an intra-day high at $16.070 an ounce. As of 10:52 a.m. EDT, December silver traded at, 16.05 an ounce, up more than 2% on the day.

Silver is outperforming gold, which is also up on for the third straight day. December gold last traded at $1,148.8 an ounce, up 1% on the day.

The rally has created some renewed optimism in a market that has been severely beat up as growing global economic concerns have impacted the precious metal’s industrial uses. In early August many analysts were bearish on silver, saying the market looked awful, as prices hit new multi-year lows.

Bart Melek, head of commodity strategy at TD Securities, explained that initial short covering in the marketplace drove prices through key resistance points and now the technical momentum traders are taking over.

Melek added that the key level he is watching is the 200-day moving average at $16.046 an ounce.

Melek said that silver appears to be benefiting from lower global economic concerns and the fact that gold prices are higher on the back of shifting Federal Reserve monetary policy expectations.

“The market is starting to think that the Fed is never, ever going to be able to raise rates that that is helping gold; in fact it is lifting the entire precious metals sector,” he said.

Ted Sloup, senior market strategist at iiTrader, said that this latest rally is helping to shift his opinion of the silver market. He noted that he has been bearish on silver as the market has not been able to see any follow-through buying on a big rally.

However, he added that now they are not only seeing follow-through momentum but increased trading activity.

“Volume is confirming price action,” he said. “I have been bearish on silver for a long time but this rally is making me change my stance.”

Sloup added that the price level he is watching in silver right now is the May highs around $16.36 an ounce.

Ole Hansen, head of commodity trading at Saxo Bank, said that by silver pushing above its August highs, it has managed to break its downtrend, something the gold market has yet been unable to accomplish.

Hanse added that silver has recovered all of its losses since the Chinese government devalued its currency at the start of August, which sparked a worldwide equity market selloff and raised concerns of global economic weakness, hurting the precious metal’s fundamental industrial outlook.

“The market has become a lot less one-sided and I think that bodes well for further gains,” he said.

However, the latest silver rally is still questionable as gold has still seen the same kind of trading momentum. The gold market has been unable to break its August highs at $1,169 an ounce and is well under its 200-day moving average at $1,178.80.

“We still haven’t gotten the same signal from gold so we just have to wait and see if silver can sustain higher prices,” said Hansen.

Sloup said that previously silver was a lot more beat up than gold so a strong rally in silver might not be enough to bring investors back into the precious metals market.

“The gold:silver ratio is trading around 70, at historical highs, so silver has a long way to go to get back into its traditional range,” he said.

Melek remained a little bit more optimistic, saying that any improvement in the precious metals complex will be positive for sustainably higher prices in gold and silver. “It’s like a virtuous circle,” he added.

By Neils Christensen of Kitco News;
Follow me on Twitter @neils_C



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