Silver prices continued to tumble for the third straight month as bulls were completely over powered by bears. On the downside, successful breach of the previous low of Rs.37211/kg has led to further correctives moves in the counter.
Silver prices posted its fourth consecutive monthly fall as it corrected by close to eight percent in October. The catalyst behind the sell-off was the better-than-expected U.S. Non-Farm Payrolls report and as the dollar that was boosted after the U.S. GDP was revised up to 4.6 percent in the three months to June from a previous estimate of 4.2 percent. It was the fastest rate of expansion since the fourth quarter of 2011. The upbeat data added to the view that the strengthening economic recovery may prompt the Federal Reserve to raise interest rates sooner than markets are expecting. Expectations for higher inter-est rates going forward are considered bearish for silver, as the precious metal struggles to compete with yield-bearing assets when rates are on the rise.
In addition, the divergence in policy be-tween the major central banks is also helping to drive silver lower. At this time, the Fed is considering raising interest rates while the Bank of England remains hesitant. The central bank in Japan, Europe and New Zealand are all in favor of weaker currencies, providing additional support to the U.S. Dollar. Although, silver price drop halted after the minutes of the Federal Reserve's September meeting showed that some officials were concerned over the impact of the stronger dollar on global growth and the outlook for U.S. inflation. Silver was also supported after China's central bank signaled plans to extend as much as 200 billion Yuan in short-term loans to the nation's banks in order to spur lending activity and boost growth.
A closely watched gauge of activity in China's manufacturing sector rose in October, a result which may go some way in easing concerns over the pace of Chinese economic growth. In addition, even though hedge and commodity funds are short, they may be looking to lighten up a little and book some profits at current price levels and it may cause a few short-term counter-trend spikes, but because of the bearish fundamentals, these moves may be short-lived and likely to attract fresh shorting pres-sure. Also, in India, sale of silver bars and coins surged along with the yellow metal because of the ongoing festival season. In a nut shell, the longer-term fundamentals such as low inflation and rising U.S. interest rates should keep the downside pressure on the market. However, traders should continue to watch for counter -trend reactions because of technically oversold conditions and the possibility of geopolitical events flaring up.
Silver prices continued to tumble for the third straight month as bulls were completely over powered by bears. On the downside, successful breach of the previous low of Rs.37211/kg has led to further correctives moves in the counter. Silver prices are still trading sharply below its short term moving averages, keeping the short term trend strongly in grip of bears. Weekly technical charts are also showing that momentum indicator RSI and MACD indicators are in over-sold trajectory, indicating prices are vulnerable to temporary spikes for the next month. Broader trend however re-mains weak with stiff resistance zone around Rs.38700-39000 /kg levels. Having said that, the prices are trading in an oversold zone for now from where we may see some short covering rally, which can take the prices high-er near its above mentioned resistance zone. At COMEX too , prices are near their crucial support mark of $15.9 per ounce , which may result in small pullback in prices. How-ever, a convincing breach of the same would mean a precipitous fall in prices up to even $14.9 per ounce mark.