Silver Stalls Ahead of Fed Event

Silver opened the week higher, boosted by strength in the crude and base metals markets. September silver on the COMEX rose to the highest level since May in early Monday trading, but the upward move lost its momentum. By the end of floor trading, the September contract was down $0.50 from its intraday high. At the close of the New York spot market, silver had lost a dime, ending the day at $30.72. Such action characterizes silver’s behavior thus far this week.

On numerous occasions silver pushed its way above $31 on the New York spot market, but it could not manage to keep above that mark for very long. By the close each day through Thursday, the white metal was forced down for a finish within a tight range.

That came as no surprise for many market participants, as the market was largely expected to take notice of economic headlines and then stall ahead of the Federal Reserve symposium in Jackson Hole, which has been sharply in focus for investors since last week.

The desire for more quantitative easing perseveres. Market participants warn that disappointment could result in a significant loss of support.

The boost that silver received last week when the minutes from the latest Federal Open Market Committee meeting were released is but one piece of evidence that positive news from this week’s Fed event is priced into the market.

Silver prices, which strengthened in India last week, continued on an upward trend this week, with futures surging on Monday. However, the pressure has already set in. On Thursday, both the September and December contracts on the Multi Commodity Exchange were lower, due in part to growing speculation that positive US economic data means that the Fed will not ease. That is yet another indication of the effects that could be seen if those speculations are confirmed.

Silver investors should, therefore, be prepared for volatility on Friday. Market participants may also want to brace themselves for action next week. The monthly European Central Bank meeting, which will be held on September 6, is also on the watch list of many investors, and analysts suggest that developments from this meeting could also prompt a move in metal prices.

A final consideration is that it appears that there has been a significant buildup of bearish bets in the COMEX silver market. The latest Commitment of Traders Futures and Options report, which includes two days of last week’s rally, reveals that commercial traders increased their short positions by 9,997 contracts. That occurred as futures players in the non-commercial and non-reportable categories increased their net long positions by 9,996 contracts. These changes concern some market participants because while the contracts on the long side are held by a myriad of traders, a significant portion of short positions are under the reigns of the largest eight players, which means they have the ability to have a significant impact on the market.

The close

Following the close of the US floor session, December silver on the COMEX was down $0.45 at $30.46, near the session low. New York spot prices finished the day at $30.45, down $0.28.

Silver bulls continue to possess the technical advantage. For a serious upward price movement, silver needs to breach resistance at $31.50. Before the bears can regain the advantage, they will need silver to fall below the psychological support level of $30.

Company news

Aurcana (TSXV:AUN) announced that an updated resource estimate for the La Negra mine in Mexico shows a 50-fold increase from the prior measured and indicated estimate of 2.3 million ounces of silver. Results from this latest estimate include 115 million ounces of silver and significant base metals.

Silver Bull Resources (AMEX:SVBL,TSX:SVB) reported that the results from its underground drilling program at the Sierra Mojada project reveal high-grade silver, lead and zinc intercepts.

Securities Disclosure: I, Michelle Smith, hold no direct investment interest in any company mentioned in this article.