silver rise explanation?
1 1

15 posts in this topic

773 posts

Have been watching the usual places but still without noting any credible explanation for the substantial recent increase in silver prices, currently over $20, it can't just be due to Brexit because other precious metals have only risen by relatively small amounts. Any ideas?

Share this post


Link to post
Share on other sites
3,303 posts

Silver is always more volatile; also read the articles on kitco and at moneychanger.

Share this post


Link to post
Share on other sites
10,734 posts

Silver is the less affluent man's metal. You can buy a position it for a lot less money than gold. Some people thought that Brexit was an earth shattering event. The smart money knew it wasn't. Perhaps we have a delayed reaction here to Brexit.

Share this post


Link to post
Share on other sites
986 posts

Now I just have to decide when/if to sell some of the 90% I bought when it was much cheaper hm

Share this post


Link to post
Share on other sites
14,819 posts

Brexit is the only major thing I'm aware of. The market volatility and world economy shakeout from that is just starting.

Share this post


Link to post
Share on other sites
8,358 posts

The metal markets often do not react in a logical manner. They don't need a reason, they just do it.

Share this post


Link to post
Share on other sites
335 posts

With market uncertainty comes a move to supposedly stable assets.

 

The problem is that any resolution of what Brexit means is over 2 years away.

 

So there will be a dozen 'crisis' moments between now and then.

Share this post


Link to post
Share on other sites
11,876 posts

During warmer weather, the silver bars get warm. They expand, and begin to rise -- something like a hot air balloon....which might be a good metaphor for the so-called "precious metals" speculative market.

Share this post


Link to post
Share on other sites
5,842 posts
During warmer weather, the silver bars get warm. They expand, and begin to rise -- something like a hot air balloon....which might be a good metaphor for the so-called "precious metals" speculative market.

 

Yeah, but did you even consider the fact that I sneezed this morning? That in itself could bring down the market in a crash!

 

jom

Share this post


Link to post
Share on other sites
11,876 posts

Argggh --- I forgot your sneeze in the calculations! Oh, no! I accounted for bean-generated gas and fracking juice, but missed the sneeze....Oh, well, back to CERN, the Standard Model and particle physics.

Share this post


Link to post
Share on other sites
773 posts

Thanks for various thoughtful and entertaining replies. Meanwhile the meteoric rise of silver has paused since the July 4th weekend. I doubt it was the purchases of Joe-6-pack that caused the rapid rise, especially since there was already a glut of available silver bullion at retail. We really need to know the volume of silver trades to assess that, where is the chart please?

 

One possible alternate explanation: some large entity, such as a nation or a giant financial conglomerate, had been waiting to jump into silver, and conveniently used the Brexit referendum outcome as a cover for their activities.

Share this post


Link to post
Share on other sites
11,876 posts

"....meteoric rise of silver..."

 

Uhmmm....meteors don't rise -- they "fall" toward the center of a larger mass.

 

:)

 

PS: The quantity of silver or gold metal that Joe and Mary 6-pack buy -- or that bought by coin people -- doesn't create a wiggle in pricing.

Share this post


Link to post
Share on other sites
574 posts

Sometimes the underlying reasons behind a rally are fairly clear. Precious metals, particularly Silver, are harder to pin down. This is partly due to the extreme move Silver is prone to, but also because Silver is a store of value and an industrial metal. There is a measurable demand for Silver, and of course a measurable output. Demand has long outstripped output, but in 2016 output is actually forecast to drop for the first time.

 

source: Bloomberg

 

This is bullish, but it doesn't come as a great surprise. A small fundamental shift which is easily forecasted should not cause a commodity to jump 40%. Something else is driving this market. Brexit has undoubtedly helped this last leg up in the Silver rally, but Silver had about a 30% increase since the start of the year. Pricing in Brexit? Unlikely. The initial rally came on the back of the Fed's rate hike in December and the ensuing sell off in stocks. The first rate hike in nearly a decade is obviously a big deal and Silver rallying in a risk-off environment is completely understandable. However, the causality is questionable. Firstly Silver unusually held its gains while equities reversed in February and staged a huge rally. This was the first clue that something had changed and the downtrend was reversing. Last week Silver and stocks rallied together. Silver is not only rallying because of the traditional 'risk off' correlation; there are other factors at work. The shocking NFP figure of June 3rd sparked the most recent 'leg' of the Silver advance. We keep hearing from the Fed about how further rate hikes are data dependent. This means bad news is good news for Silver. Brexit added to this; if the Fed wants excuses to delay the next hike it now has them. It also means that whilst the market is fixated on the Fed, Silver can rally with equities, at least up to a point. The focus should be on the Dollar, not equities.

 

The inverse relationship between Silver and the Dollar has been very consistent this year. Up until Brexit the moves were nearly a mirror image. Brexit weakened EURUSD and GBPUSD considerably, but also spiked Silver and Gold. The Dollar may rise by default if Europe has to find new ways to stimulate the economy, but this possibility has not slowed Silver's progress so far. Silver reacts to Dollar prices, but there may be something else at work, and this is more subtle. Silver is still a play on risk, but this isn't reflected in U.S equities (yet).

 

Precious metals are looking at China:

source: Zerohedge

 

Despite China's RMB peg to the Dollar, it is trending down very steeply, losing nearly 10% since last November. Foreign exchange reserves are being depleted. Foreseeing trouble ahead, precious metals are strengthening. John Lee, CFA, wrote an article titled, 'Shocking Breakdown of China's Foreign Reserves Is Bullish For Gold' which gives a detailed breakdown of the situation. Throw inflation, sentiment, positioning, and hedging into the mix and you have a complex narrative. I try to simplify things for my own style of trading (and sanity) so will only monitor what I see as the main drivers: the U.S. Dollar, the RMB, and the likelihood of a Fed rate hike. Unless there is a massive change in these 3 drivers I see no reason for Silver to reverse. Until that happens, Silver is likely to continue rallying until it reaches an extreme price that is unsustainable. To help understand where this may be I use technical analysis.

 

Targets

source: CMEgroup

 

Silver is retracing a multi-year downtrend and this initial reversal is often dangerous. Shorts have had it their way for so long it will be hard for them to change their bias and buy, especially after a 40% rally. Even for Silver bulls it's a tricky market; the downtrend was so persistent it forced many longs to capitulate. They are now chasing it up and may be scared to buy at the top of a notorious Silver spike. This kind of sentiment supports higher prices. But to where? When a wedge pattern breaks (like it did at the beginning of the year) it's target is the origin of the wedge, or $25. This is also the area where Silver broke down from its consolidation top. This is fairly basic technical analysis, but the simple stuff often works best. The $25 target will actually look unlikely to many technicians as the move has already been so large and Silver looks overbought. But anyone saying this target can't be reached doesn't know Silver. Silver has its own personality and character. The moves in both directions can be extreme and any traditional readings of 'overbought' that may work in other markets are unlikely to work here.

 

Trading Silver

 

The charts suggests a pause and pull-back this week, with a resumption of the trend later. NFP data on Friday will influence the drivers I have already highlighted and it makes sense to balance and pause into this event.

 

conclusions

 

Silver's downtrend has reversed and it is unwise to stand in its way. There are bullish drivers and these don't look like changing any time soon. It is therefore likely to rally until there are technical reasons to sell. These don't come into play until $25.

Edited by kmag

Share this post


Link to post
Share on other sites
1,564 posts
During warmer weather, the silver bars get warm. They expand, and begin to rise -- something like a hot air balloon....which might be a good metaphor for the so-called "precious metals" speculative market.

 

That explains it.......

I thought my bars were 'gone' on Monday. After reading this, I ran back out in the garage and, sure enough, there they were in the rafters.....Whew !

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
1 1