Silver's Deep Ties to Multiple Markets

February 3, 2017 2:40AM CST

Silver futures will continue to keep an eye on President Trump’s policy changes, the reaction to the payroll data, and the direction in equity markets. It seems that each one of these developments is domino effect of the next.  If you look at the markets initial reaction to Trump’s victory it really started to price into faster growth and inflation with 10-year yields rising faster than the short dated. How the FED may react to this is still in question. If they try and combat inflation growth by raising rates aggressively this could cause a selloff in equities. This leads us into looking into the macro picture…

Important Global Events for the Week

On Friday February 3 rd we received the Non-farm payroll report where the Dec. previous number was 156,000 and Jan expected is 170,000. The headline number for January was 227,000 which caused a small upside rally in silver. I would expect the market is really looking at this as a sign of inflation and faster growth.

Of the more interesting developments that I have been watching in the silver this week has been the concept of “open interest”. Open interest is defined as the total number of futures or options contracts of a given commodity that have not yet been offset by an opposite futures or options transaction nor fulfilled by delivery of the commodity or option exercise. Each open transaction has a buyer and a seller, but for calculation of open interest, only one side of the contract is counted. It’s very important to be able to identify these types of events and be able to come up with a strategy ahead of time.

Open interest in the silver market went under intense liquidation following the gold market much of last week and built it back much of this week. Look for a punch through $17.75 in order to trigger the next potential bull move to $19.

Silver Daily Chart

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