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FOCUS: Silver Finds Short-Term Support, But Some See Big Picture As Down

By Debbie Carlson of Kitco News
Thursday May 16, 2013 1:06 PM

(Kitco News) - Silver prices bounced soundly from Thursday’s session lows as the U.S. dollar weakened and U.S. economic data was less-than-stellar.

There’s debate, though, regarding the action in Thursday’s session by silver market participants. Some market watchers said silver’s bounce off support at $22 is a positive short-term sign for those who want to see higher prices, but others said this week’s break below $23 is an omen for further weakness longer term.

At 12:52 p.m. EDT, July silver prices on the Comex exchange were down 8.3 cents to $22.575 an ounce. They bounced from a session low of $22.06 that was the weakest level since April 16.

Gold dragged down silver during the mid-April selloff, with silver prices falling nearly 24% from peak to trough at the time. Like gold, it also rebounded once the selloff abated. Silver often follows gold and historically silver is more volatile than gold, so to see it fall or rise at a sharper velocity compared to gold isn’t unusual.

Analysts said silver is suffering from the same problems that are plaguing gold, namely the strength in equities and the U.S. dollar. The global economy is still wobbly, with Europe still in recession and China’s growth cooler, so silver can’t necessarily lean on its role as an industrial metal, either.

What’s pressuring silver, too, are bearish-looking technical charts. Dave Toth, director of technical research at RJ O'Brien, said silver is in a downtrend and said he recommends being bearish. “It’s worth being short. If (you’re) not (bearish), it’s worth selling on this recovery we’re seeing,” he said.

Toth said “the extent and impulsiveness of the break of support around $23” underscores the longer-term bearish trend in silver. 

Ralph Preston, principal at Heritage West Financial, agreed with Toth. “At the moment silver prices are technically on the defensive and sanguine to economic and geopolitical fundamentals that threaten the global economy. In the short term, a close below $22.50 projects a move to challenge April’s spike low (of $21.120). Prices will need to close back over $25 in order to reinvigorate the bulls; until then the bear will dominate this market,” Preston said.

For the short term, at least, some analysts are encouraged by the silver bounce on Thursday. Jim Comiskey, senior account executive for Archer Financial Services, said he’s impressed by silver’s ability to rebound from the lows and said that silver likely helped gold of its lows on Thursday.

“You do see the changing of the baton from one hand to the other with gold and silver sometimes,” Comiskey said. “With silver … off its lows (so strongly), that’s supported gold.”

He said what’s supported silver and gold Thursday was the weaker U.S. dollar, which pulled back following lower-than-expected economic data, including weekly unemployment figures and housing numbers. However, volume is low, so he’s not ready to read a lot into Thursday’s rebound. “I’m a bit cautiously optimistic here,” he said.

Toth said the U.S. dollar index also pulled back because it ran into technical chart resistance at the July 2012 high of 84.10 during Wednesday’s trade. However, he said that’s only a short-term setback for the dollar, which he said is in a bull trend.

Dave Meger, director of metals trading at Vision Financial Markets, said for the short to medium term, silver prices are likely to be looking to establish some range, with rallies likely to be sold, but buying coming in under the market.

In addition to the overall dollar strength, Meger also mentioned the outflows from exchange-traded funds are dampening demand. While the outflows from the gold-backed ETFs are getting most of the attention, the biggest silver ETF, the iShares Silver Trust (NYSE:SLV), saw a reduction in holdings. As of Wednesday, according to its website, the ETF held 10,392.35 metric tons of silver, down from the May 1 level of 10,452.50 tons.

What’s supporting silver is the ultra-loose monetary policy from most central banks and general demand for physical silver, he said. The U.S. Mint’s Web site shows as of Thursday silver coin sales for the first half of May are at 1.73 million ounces, which compares to April’s full-month sales of 4.09 million ounces.

Meger said he wouldn’t be surprised to see silver move into a lull going to the seasonally slow time, which is usually now until the end of June. From there he expects silver prices to bottom out.

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By Debbie Carlson of Kitco News dcarlson@kitco.com

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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