'A Wave Of Fresh Buying' To Push Silver Prices Higher - Analyst
Silver can be quite sporadic and price moves extreme, Metal Bulletin precious metals analyst Boris Mikanikrezai wrote in a Seeking Alpha post on Wednesday.
“Spec sentiment tends to move from an extreme to another. When sentiment is extremely bearish, a wave of short-covering initially follows, turning spec positioning to a neutral configuration. But due to the tendency of the market to move from an extreme to another, a wave of fresh buying emerges, pushing spec positioning to an excessively bullish configuration. And it eventually corrects,” Mikanikrezai said.
January’s pick up in prices follows several difficult years, with spot prices falling around 7.6% during the last 12 months and 16.6% during the last five years.
But, things are looking up for silver and the current rally will likely be sustained, the analyst added.
Spot silver was last trading at $15.96, down 0.44% on the day, after advancing 3.1% during the last 30 days.
“While the wave of short-covering in silver took place in H2 2018, I am inclined to believe that a wave of fresh buying (pushing spec positioning to an extremely bullish configuration) will take place in H1 2019,” Mikanikrezai said.
The dovish Federal Reserve plays a big part in Mikanikrezai’s bullish outlook.
“The recent rally in silver spot prices seems to be driven by renewed speculative fresh buying,” he said. “Macro backdrop for silver is very constructive thanks to a patient, flexible Fed. [I] expect strength in silver to continue in the near term.”
On Wednesday, the Federal Reserve kept rates unchanged at a range between 2.25% and 2.50% as it stressed patience.
“Despite already ‘doved-up’ investor expectations, the outcome of the first FOMC meeting of the year (January 29-30) proved more accommodative than the market had expected,” Mikanikrezai said. “As far as silver is concerned, the more dovish-than-expected Fed's tone has produced a notable reduction in Fed tightening expectations.”
With this new Fed in mind, the U.S. dollar will likely weaken and silver prices rise, the analyst pointed out.
“Looking ahead, I expect further downward pressure in the dollar and US real rates as the market continues to digest the dovish Fed rhetoric, thereby pushing silver spot prices still higher. With the trading momentum in the silver market positive, the rally in silver spot prices is due to accelerate.”