01/07/2014 9:52am CST
As we move into the new year we get a fresh start looking at the silver market. The year is fresh, but there are still tailing effects from the past few years. Although 2012 didn’t see silver as high as the 2011 highs, every time this market hit the 2600 area it held the support and would rally to the 30’s, making a stronger case for the bull in this market. However, as we came into 2013 the market opened at a nice 3000 and quickly sold off over the next 6 months to a low of 18185. This market hasn’t seen this low since 2010. Both the gold and silver markets came into the spotlight with the financial crisis hitting near the end of 2008. Both of these markets rallied once ‘news’ broke of the crisis and they became a flight to safety just in case the entire market collapsed. As we’re looking at the world in 2013 this didn’t happen. Although the world isn’t running as good as some folks would like it, looking at manufacturing and employment numbers throughout the world it has gotten better than it was. There is always room for improvement but the situation is getting better.
Where does this leave the metals? There are still industrial demands for the metals markets and there are disputes about the levels being mined and what’s available to use for production, but as the fear of inflation is slowly subsiding and the economic situation is improving, these metals are starting to lose their shine, so to say. 2013 was an extremely traumatic year for silver and it was the worst performance in over 30 years, since the famous Hunt Brothers scandal. I’m sure there are a number of commentators that have a name for the most recent price drop in silver, but we have to deal with the last trade of the market, which puts it hovering around 2000. We can just call this the great fall from 2011.
Considering how bearish on the charts I’ve been and the other numerous commentators telling the great demise of the silver and gold market it’s easy to want to be the contrarian in this situation. In that regard, the technicals of this market put it at a level where if it’s going to hold, it has to hold here. Old resistance, new support from 2010 is the 1950 level this market is resting on. It needs to hold onto these levels to have any technical hope for a rally this year. Continuing on the technicals starting the Fibonacci retracement from the low of 2003 to the high of 2011, the 61.8% retracement falls at 2144. This market has closed below this for the past two months, so yet again if it can’t break above that level, you can look for lower prices. There has been an upward trend line in place since the 2011 high which could see this market rally to 23700, but again if this market can’t break above this level you could see lower prices.
We’re at a very interesting time. Janet Yellen was confirmed to the Fed yesterday and she’s getting the reins from Chairman Bernanke in a slowly improving economy. Everyone is wondering how she will handle the quantitative easing that’s been in place the last few years. We can expect that the employment numbers will be closely followed by her and the Fed as this is one of her biggest indicators of the health of the economy. At the last meeting they decided to only purchase $75 billion of bond purchases from the $85 billion that’s been commonplace for the past few years. Will they drop it to $65 billion next month? When will they be completely done? Assuming everything lines up and you see an improving picture you could see lower prices in the coming months for the silver market. However, if things continue to worsen you could see these metals regain their shine. There are many different sized silver futures contracts to trade and it’s possible to get involved with a long straddle in the options markets that looks to take advantage of a move in either the up or down direction. As usual keep your risk management close and let me know how I can help.
If you'd like to learn more about futures trading or the silver market specifically, please contact RJO Futures Senior Trading Broker Mike Rataj at 800-453-4494 or firstname.lastname@example.org.
Silver 2001 – 2014 Monthly
Source: DTN Prophet X
Silver Monthly 1971-2014
Source: RJO Vantage