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14.08.201911:40 Forex Analysis & Reviews: Silver recovers from position squeeze, buy on dips

Análisis a largo plazo

Silver volatility increased sharply on Tuesday following the announcement from US Trade Representative Lighthizer that tariffs on some important categories of Chinese imports, including electronics, would be delayed until mid-December from the beginning of September.

As risk appetite strengthened sharply, investors showed lower demand for safe haven assets including precious metals.

There was an immediate position squeeze as traders rushed to close long positions, thus pushing the silver price down. From 12-month highs at $17.50 per ounce, silver declined sharply to lows near $16.50.

There was still solid support on dips and silver edged back above $17.00 per ounce in Europe on Wednesday.

Markets have taken a less euphoric attitude towards the US trade announcement amid fears over an underlying slowdown in the global economy. US equity futures have dipped again with S&P 500 futures shedding almost 0.50%. There has also been fresh demand for US benchmark 10-year Treasuries whose yields retreated to 1.65%.

So, demand for safe haven assets is likely to remain strong amid fears over the global outlook, especially after a run of disappointing data. China's industrial production slumped to a 17-year low.

Global bond yields have also continued to decline with German 10-year yields at a fresh record low after the German economy contracted 0.1% in the second quarter.

Silver will be vulnerable to some extent due to fears that weak industrial production and disruption to supply chains will undermine commercial demand. This is more likely to curb gains rather than lead to net losses.

In historic terms, the gold/silver ratio remains close to 10-year highs which will provide important protection.

Technically, demand for silver is likely to remain buoyant on any fresh retreat to $16.80 per ounce.

Exchange Rates 14.08.2019 analysis

*El análisis de mercado publicado aquí tiene la finalidad de incrementar su conocimiento, más no darle instrucciones para realizar una operación.

Tim Clayton,
Analytical expert of InstaSpot
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