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As the Fed was once again the center of attention last week, the price of silver managed to fare pretty well.
It’s all gotten a little perverted, as we seem to be going back to a “bad news is good news” outlook.
What I mean by that is as economic data comes in on the weak side, the market expects the Fed to soften its hawkish stance for hiking rates.
That in turn means an easier monetary policy, which is looking supportive for precious metals.
That looks like the main thrust behind silver’s climb earlier this week as the Fed was meeting.
Let’s dig a little deeper into what moved the price of silver and what’s ahead…
What’s Moving the Price of Silver Now
Silver started out the last trading week at $14.10. As the Fed began its meeting the next day, Tuesday, Jan. 26, the price of silver kept rising to open at $14.30 and eventually closed at $14.49.
The silver price then dropped to $14.22 by closing Thursday. Then Friday, on weak U.S. growth numbers and a surprise Bank of Japan announcement for negative rates, the dollar shot higher, weighing on gold – but not on silver. The price of silver held steady around $14.20.
Here’s what this means for us going forward…
In my last silver price update, I told you how technical action in the silver price was looking constructive. That’s because silver had edged above its 50-day moving average (MA) and was forming a series of higher lows and lower highs.
Well, in the past week, the price of silver traded up to $14.50, clearly above the 50-day MA, and held above that.
There’s been interesting strength as well in silver stocks.
Using the Global X Silver Miners ETF (NYSE: SIL) as a proxy, you can see that over last week, silver shares really bounced, while stocks as measured by the S&P 500 only moved slightly higher.
SIL rose about 9.5% during trading last week, while the S&P 500 went up about 2%.
That’s of course not the whole story…
On a year-to-date basis, both SIL and the S&P are down about 7%. But it’s the strong recovery in SIL since its recent bottom on Jan. 19 that’s especially noteworthy.
An especially relevant piece of news for the near-term price of silver relates to short futures positions.
The most recent Commitment of Traders Report (COT), which covers the week through Jan. 19, reveals that silver short positioning has fallen by more than 50%.
That’s likely the biggest driver for recent silver gains, pushing Comex March silver futures up 2.4%. As short contract holders buy longs to cover their positions, this helps push silver prices higher.
A Commerzbank analyst highlighted that net positioning in silver had reached its highest level of the past two and a half months.
And according to head of commodity trading at TD Securities, Bart Melek, “Global equity jitters, fleeting economic data, and China devaluation concerns all diminish rate hike expectations and add safe haven appeal for the precious complex.”
So with a number of factors like a diminished short position, a healthy technical picture, and a strong recovery in silver equities, we could see the price of silver hold up well in the weeks ahead.
I’ll certainly be keeping my eyes on this market for you.
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