Silver Price News: Silver Weathers Growth Headwinds

Performance & Positioning

Silver has made some progress in recouping losses incurred last week during the global market’s growth panic, having put on c. 1.5% since Friday’s close at the time of writing. Preliminary data for physically backed silver ETFs/ETCs flows this week suggest very little net activity, which might be considered an achievement considering the fundamental and technical headwinds that we detail below.

Fundamental Drivers                                                                                                    

The easier US rate environment and slightly weaker US dollar seen this week is somewhat supportive of silver pricing. Indeed, the relative move of 2-Year and 10-Year US Treasury yields suggests a smaller yield inversion and a lower probability of a US recession. However, incoming data over recent days have done little to allay fears that the global economy is slowing rapidly, with negative implications for industrial silver demand. Monday saw OPEC cut its oil demand forecasts on softer Chinese growth, while Tuesday revealed weak Chinese loan growth and very disappointing Eurozone ZEW Economic Sentiment.

Despite Atlanta Fed President Bostic seeing risks to the US economy as being reasonably balanced, markets still feel that the Fed is ‘behind the curve’ and must cut rates more aggressively to support growth. Indeed, it could be argued that central banks globally are risking significant policy errors.

Upcoming events for silver investors include Eurozone Industrial Production for June on 14 August and China industrial production and retail sales for July and Japan flash Q2GDP data all on 15 August.

Technical Analysis

Silver has been struggling in recent days to overcome descending major oblique resistance, currently at $27.88/toz and although momentum indicators, such as RSI and MACD have improved somewhat, they remain marginally negative. Moreover, traded volumes remain depressed and a sharply descending 20-day Simple Moving Average, currently at $28.18/toz, will also come into play in the latter half of the week. All these factors weigh against silver breaking out in the immediate term.

On a more positive note, ascending minor oblique support, currently at $26.39/toz and major horizontal support at $26.20/toz remains very much intact, having been tested during 5-7 August.

Should silver negotiate proximate resistance and likely interference from the declining 20-day Simple Moving Average, then the next hurdle will be major horizontal resistance at $28.59/toz. Beyond that lies the 50% Fibonacci Retracement of the 11 July – 7 August downtrend at $29.10/toz, the falling 50-day Simple Moving Average, currently at $29.27/toz, and the 61.8% Fibonacci Retracement level at $29.72toz, all of which are expected to offer various degrees of resistance.  Major horizontal resistance at both $29.77/toz and $32.06/toz remains intact.