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Low Precious Metal Prices Trigger Demand; Silver Below $17?

by on February 1, 2014 5:25 pm BST
 

Last year, precious metals where almost left for dead with gold falling 28 percent and silver falling 35 percent. However, the low spot prices gave individual investors incentive to stock up on bullion and jewelry, many with fears of reckless monetary policy conducted by the world’s central banks.

According to the US Mint, sales of gold coins jumped 63 percent in January, up 91,500 ounces in coins versus December’s 56,000 ounces. Silver coin sales nearly tripled to 4.78 million ounces. The US Mint has have trmendous success with their gold and silver eagle coins, while other mints worldwide, such as Perth Mint in Australia or Muenze Oesterreich AG in Austeria, have seen such demand to run production 24 hours a day.

Gold and silver futures have paired back gains in 2014, with silver taken the brunt of the damage as it tracks inversely to the US dollar. The weekly chart of silver poses an interesting question: is silver about to dip below $17 per ounce? A five-year weekly chart of silver futures has a Fibonacci retracement, from the low of $11.725 per ounce, to the high of $49.82 per ounce, overlay.

Price action has hovered the 78.6 percent level mid-November, and the current week closed at the bottom of the range, underneath this level. In June 2013, silver reached these levels and bounced higher. However, price actions was well-oversold with a RSI under 20. Currently, the weekly RSI stands at 35, which leaves one to reckon that more declines are possible. The ADX is flat, but still elevated. +/-DMIs are further diverging.

WK Chart of SI

WK Chart of SI

The silver-dollar trade has been evident – silver has normally declined, while the dollar posts gains, and vice versa. The dollar’s weekly chart shows that price action has been confined to 80-81.50 since September 2013. However with the ascending trend line created in October last year, a wedge is beginning to form with resistance at 81.574. This week’s dollar candle was strong, and the RSI is beginning to tick upwards. If the dollar can breakout of this range, the results could be strong. A +/- DMI crossover is likely to occur, fueling the moment. In this scenario, the dollar could see a target of 82.556. This can support the idea of silver sub-$17 per ounce.

WK Chart of DX

WK Chart of DX