Yesterday’s hawkish tone from the FED, coupled with the consequent surge higher for the US dollar, appears to have finally provided the catalyst for silver’s breakout from its recent extended phase of price congestion which has seen the industrial metal trade in a narrow range throughout October, and neatly defined by the red and blue dotted lines of accumulation and distribution. The move lower for gold on the news, has continued this morning, with the precious metal plunging further and down to test the $1200 per ounce area in early trading, dragging silver down with it and through the $17 per ounce level, to currently trade at $16.85 per ounce on Globex. This morning’s price action for silver is key, as it has now moved through the potential support platform in the $17.25 per ounce region, and provided today’s price action holds well below this level, then the metal looks set to move deeper still as the bearish tone picks up the momentum from gold and the US dollar.
The congestion phase for silver has been particularly well defined, both by the accumulation and distribution zones, along with the pivot highs and pivot lows. The two pivot highs reinforced the resistance in the $17.70 per ounce region which was then repeatedly tested, and punctuated with the long legged doji candle of the 15th October, sending a clear signal of both market indecision and a lack of direction. The pivot lows on the other hand have confirmed the platform of support currently being breached in the $17.25 per ounce area, and should the daily candle close with a wide spread and associated high volume, this will validate and confirm the bearish picture for silver. The next intermediate level of potential support now awaits in the $15.80 per ounce area, and any move through here could see silver then test the deeper platform of accumulation in the $13.00 per ounce area. The heady days of $50 per ounce for silver are now but a dim and distant memory, and with the prospect of further gains for the US dollar, and with a heavily bearish picture for gold, the outlook for silver remains negative, with the possibility of a return to single figures in the longer term.
Returning to the FED, if their analysis of the US economy is correct, then for silver this may prove to be the catalyst for a reversal in sentiment, with a consequent increase in demand for the metal. A slim hope at present, and certainly a longer term view. In the short term, expect to see silver decline further as the two metals spiral lower driven by the technical and fundamental landscape.
By Anna Coulling