• Silver suffered 3.23% decline last week due to low physical demand and Fed stimulus reduction
• Silver prices expected to take retracement from current level
• Higher Low (HL) is likely which will be a confirmation for bullish reversal
Silver futures for March delivery dropped 0.03% on Friday to $19.12 an ounce hence declining around 3.23% over the week as Federal Reserve once again cut stimulus and physical demand from China reduced. The precious metal is being traded around $19.22 at 11:20 GMT in London. Immediate support may be noted at $18.98, low of January 30, a break below may expose $18.62, low of 31st December and swing low of previous wave. Support of double bottom price pattern is also sitting in around $18.62. A daily close below $18.62 can trigger a deeper wave of losses for silver.
On upside, the first hurdle is seen near $19.66 that is the 26.6% fib level, 55 DMA is also sitting in near this resistance. A break above $19.66 may threaten $20.31 which is the 38.2% fib level and close to 100 DMA. A surge above $20.31 may expose $20.84 i.e. 50% fib level and 200 DMA. The Commodity Channel Index (CCI) and Relative Strength Index (RSI) both are retreating after hitting oversold territory. Slight positive divergence may also be witnessed with MACD. Silver prices are likely to print Higher Low (HL) which will be a confirmation for bullish reversal.
On January 29, the US central bank announced more trimming in monthly bond purchases by $10 billion, hence reducing Quantitative Easing (QE) to $65 billion. This triggered a renewed buying pressure in the US Dollar and, consequently, silver prices suffered steep losses as silver is negatively correlated to the US Dollar. Furthermore, silver also missed physical buying support from China, the biggest consumer of the precious metal, especially as the holiday season began in the Asian nation.
It is pertinent to mention here that the mining cost of silver is estimated around $21.39, which is above the current price of the white metal. Therefore, some miners have halted the production of silver and many others are mulling over similar plans, hence a silver supply shortage is likely if prices remain below mining costs for a longer period of time. Silver prices will tend to rise sharply if we see the supply and demand gap in the lustrous metal. This is the reason why many analysts believe that silver has touched its bottom level and the only way forward now is an upward move.
On Friday, the US labor department is scheduled to release non-farm payrolls and unemployment reports for the month of January that will be of great significance as usual. The pace of the monthly asset purchase program is linked to progress in the labor market; an impressive outcome may prompt FOMC policy makers to consider more trimming in QE during the next monetary policy meeting. The unemployment rate had slumped to the lowest level since 2008 in December; analysts are expecting no changes to the jobless rate this time around.
- Commodity Markets
- Basic Materials Industry
- Silver prices