Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Silver Is Not Buying the Risk Asset Bounce

Commodities / Gold and Silver 2016 Jun 30, 2016 - 12:25 PM GMT

By: AnyOption

Commodities

Precious metals remain elevated despite the recent rebound in risk assets as silver prices approach new post-Brexit vote highs amid concerning developments relating to the global outlook.  As central banks in advanced economies rapidly test the limits of monetary policy, rising speculation of renewed accommodation in the United States is driving silver prices sharply higher.  While risk assets have managed to bounce after the referendum sent shockwaves across global financial markets, silver prices have continued to gain momentum, not buying the optimism in stocks and reflecting a sense that haven assets will continue to benefit from growing volatility.  Furthermore, more talk about a return to the gold standard could see precious metals reap the rewards of greater influence in the financial system.


Silver-Gold Ratio Collapses

While not widely covered by financial news outlets and analysts, the collapse in the ratio of how many ounces of silver it would take to buy one ounce of gold has telling indications about the state of financial markets.  In the lead up to many crises, the ratio rises to levels that typically suggest it takes a significantly higher amount of silver to buy one ounce of gold.  Looking at the chart, the highs realized back in February were nearly the same levels as those witnessed back in 2008 right near the beginning of 2009, just as the last financial crisis was really taking hold.  Historically, this has proven a strong predictor of fundamental events that precede shifts in market sentiment in a very real way. 

(goldprice.org)

Looking at how prices have evolved since the Brexit decision, silver prices have made new highs while gold is still well below the $1355.50 per troy ounce reached last Friday.  It is no coincidence that Brexit has stoked uncertainty about the future of the European Union and the pace of globalization.  If anything, it has thrown into turmoil the idea of creating a pan-European susperstate.  Amid all the volatility that has resulted, many prominent economists have come back with the idea of restoring the “gold standard,” most notable among them being former Federal Reserve Chairman Alan Greenspan who has warned of an imminent crisis.  Considering speculation of further central bank accommodation is high across many advanced economies, the backdrop for further appreciation in silver prices amid the uncertainty is considerable.

Fed Unlikely to Raise

One of the biggest shifts that has resulted from the Brexit vote is market participants view towards the path of US interest rates.  According to Fed Funds futures, the probability of a rate hike before the end of the year is now 18.60%, down dramatically from levels witnessed a month ago.  Instead, the US Central Bank may now decide to lower interest rates in the coming months, potentially causing silver prices to climb even further from current levels.  Although unlikely, with the probability, currently sitting at 1.90%, should economic activity deteriorate and force the Federal Reserve to accommodate, the stage could be set for a tremendous rally higher in silver prices.  Furthermore, the fact that silver prices have continued to rise while risk assets are on the mend is symptomatic of renewed risk aversion and hedging, a factor that could add to ongoing appreciation. 

Technically Speaking

While silver prices might have snapped a longer-term downtrend with the price-action of the last few months, it has been supported by numerous technical indicators that add to an upside bias in the precious metal.  For one, the moving average crossover that transpired back in March when the 50-day moving average crossed the 200-day moving average was viewed as bullish, even though it did not offer as strong a signal as the “golden cross.”  Both moving averages are now trending higher below silver prices, acting as support.  Furthermore, the emergence of a potential upward trending equidistant channel could have strong implications for the outlook.  Although prices are nearing the top of the channel, giving a high probability of a pullback, should it remain intact, it could foretell an enduring uptrend.

While near-term there might be a pullback following the most recent sharp uptick, the reversal that began late in 2015 is still holding fast.  A technical correction would be very reasonable considering momentum higher, especially with the relative strength index trending in overbought territory above the 80.0 threshold. After a brief pullback, the next real test comes at resistance of $18.500, a critical longer-term level last tested in early 2015.  Even though silver was unable to overcome this level during the most recent rally, should it be taken out, it could pave the way for a return towards $20.000 per ounce over the coming months and renewed medium-term bullishness. 

Looking Ahead

There are many concerning data points that are pointing to a global economy that is struggling to grow aside from the fact that the dust still has not settled from the British referendum.  The high levels of accommodation undertaken by central banks of advanced economies and challenges in fighting deflation have echoed the idea of monetary policy meeting its limits.  Now that there is greater anxiety about how conditions will continue to develop, investors are still buying up haven assets in an effort to hedge against risk.  When combined with the technical picture, greater fundamental uncertainty could see silver prices maintain the current trend and continue the march higher from multi-year lows as risk aversion creeps back into investor sentiment.

Anyoption™ is the world's leading binary options trading platform. Founded in 2008, anyoption was the first financial trading platform that made it possible for anyone to invest and profit from the global stock market through trading binary options.

Our goal here at Market Oracle is to provide readers with valued insights and opinions on market events and the stories that surround them.

Website anyoption.com

© 2016 Copyright  Anyoption - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in