Silver Price Action ‘Remarkable’

Considering the dramatic smash in the gold and silver markets on Wednesday, both metals put in impressive performances yesterday – a testament to the fact that no matter what goes on the futures market, physical demand for gold and silver from around the world continues to increase. The April gold Comex futures contract gained 0.6% to settle at $1,722.20 per troy ounce, while the May delivery silver contract was up an impressive 2.9%, settling at $35.66 per troy ounce.

Trader Dan Norcini comments that this is “remarkable price action in silver”, and that “To witness a market completely undo such a breakout on massive volume and then to experience only minor additional downside pressure is also something that one rarely sees. We are getting a bird's eye view of something akin to a Supernova in the sense of its rarity.” This technical action again provides good support for the view that silver is at the start of the kind of price breakout that will see it retest the old $50 price record within the next couple of months. Whatever else one can say about silver, price action in this metal certainly ain’t for the faint hearted.

Precious metals continue to be supported by strength in the crude oil market. Late yesterday reports of a pipeline explosion in Saudi Arabia sent oil prices surging higher, with Brent crude gaining $2.20 a barrel on the news, hitting a four-year price high of $128.40, while WTI gained over $1.20 – moving above $110 a barrel. Prices have however subsided with Saudi denials of these reports, with Brent now trading at under $125 and WTI down below $108.50. The Wall Street Journal quotes a senior Saudi source saying: "The reports are completely untrue. They originated from Facebook and Twitter, and the pipeline is still up and running," while another Saudi dubbed the reports "false propaganda." Untrue though they may be, this event certainly shows that a significant event in the Middle East could spark a major rise in oil prices.

For better or worse, hedge funds regard gold, silver as commodity plays – meaning that they will go long these metals when they are feeling bullish about commodities in general. And given crude oil’s importance in the commodities market, strength in Brent and WTI prices usually coincides with gains in precious metal prices. There is also a geopolitical aspect to this as well, as gains in oil often coincide with increasing political/military tensions in the Middle East, which encourages gold buying (though not so much the other precious metals) on account of gold’s long-standing reputation as safe-haven and hedge against political risk. As long as traders have their trigger fingers on the “buy” orders as far as oil is concerned, precious metal prices will be well supported.