Silver Prices: To Trade Lower On Strong U.S. Data

Technical Outlook

The trend remains bearish below $14.40 and after today’s decline I suspect that we will be able to lower the trend defining level to yesterday’s high of $14.30 on the condition that price reaches Monday’s low of $13.89. On a break to Monday’s low of $13.80 the next support level and profit target in line is $13.50.

I see no reason to change bias so long as silver remains below Thursday’s high of $14.40.

Low Inflation Pressure – However, Silver Prices Remain Soft

The Fed’s preferred inflation gauge, the PCE Deflator increased by a measly 0.2 percent YoY vs. the Bloomberg News estimate of 0.3 percent. Core PCE increased by 1.3 percent YoY vs. a 1.4 percent estimate. This is hardly what the FED would like to see ahead of a rate increase in December, but silver prices traded lower and are expected to remain soft on the data below beating expectations.

This raft of much better than expected data is keeping silver prices low as the Dollar gains.

Also lowering the demand of Silver is the news that the ECB will be taking a break in their asset purchasing between December 22 and January 1. Instead they will look to frontload their purchases which has already triggered a higher demand for the Dollar.

Private Investors Are Fighting the Trend

While it’s quite clear according to the macro data and the technical trend that silver prices are and should be heading lower, the average private investor is fighting the trend.

Using the FXCM SSI Index and Gold as a proxy for Silver, we note that for every short position there are 2.95 long positions. This shows that traders are fighting the decline of gold prices, and given the link to silver I would make the assumption that traders are also fighting the decline in silver prices.