Can the Devil’s Metal Go Lower? Silver Demand Still Strong

Silver could soon see a price with a 14-handle.

Bullion.Directory precious metals analysis 6 November, 2014
By Christopher Lemieux
Senior FX and Commodities Analyst at FX Analytics

Silver is often called the Devil’s metal due to its mercurial nature and unpredictability. Some could also say it torments investors, and the torment could continue in the retail investor’s favorite metal.

Precious metals have seen better days. Due to the ongoing (what seems to be endless) central bank intervention, investors have been liquidating precious metal positions in order to pile cash into overvalued equities with a backdrop of a global slowdown – that seems safe doesn’t it?

Silver has been making new four-year lows as the US dollar continues to make four-year highs.

Both silver and gold are technically oversold, but the market sentiment is still key in determining silver’s direction.

As long as market participants favor risk, precious metals will stumble ever lower. Silver, which is closely tied to economic data, may not even see much demand on poor data due to central bank backing.

The weekly chart is showing that support is near, but silver will likely search out support in the mid-$14 per ounce.

With a more hawkish FOMC, which is filled with nothing but doves, the dollar could remain strong near-term. The problem is, the Fed wants a weaker dollar to push up inflation.

I believe the Fed will intervene with another stimulus-like program simply to devalue the greenback, which could give silver a mighty boost. Silver is down 22 percent in three months.

Silver broke important support at $15.60, while the next major support test will be found at $14.62. Secondary support levels, depending on whether sentiment grows more bearish, include $13.65 and $12.40 per toz.

Given the oversold condition, prices could seek a retracement to $16.12, while weekly resistance will be found at $17.36 and $18.31.

The momentum of the current downtrend is very strong, with the ADX indicator over 35 on the weekly chart (20 equals a “strong” trend). The negative directional movement indicator (- DMI) is approaching 40. However, it looks to be curling over. A tick down in the – DMI could support some price support in the near-term.

Silver has been hit harder than gold; but, the sharp, swift declines have not worried retail investors who have used these declines to dollar-cost average their holdings.

The US Mint has see great demand in both the silver and gold American Eagles. Yesterday, a US Mint spokesperson reported that they SOLD OUT of silver American Eagles. The silver American Eagle was in such demand, until June of this year, the minted coin was on a rationing program due to depleted coin blanks.

The Royal Canadian Mint (RCM) has had to ration the popular silver Canadian Maple Leaf this year due to record demand.

It is safe to say, future prices are a mere fabrication of investors naked-shorting contracts in the futures markets. And physical investors can only thank them.

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