Silver Price: Adding To Losses On Higher Interest Rates

2015-11-02 15:39:00

Alejandro Zambrano, Market Analyst

Silver is lower by 1.04% in today’s session and we expect the price to drift lower as long as we trade below Friday’s high of $15.65. Long-term traders will be bearish below the October high of $16.20, near this level we find the 200-day moving average. We expect the price to reach $15.

U.S.Short-Term Yields Trade Higher, China PMI Is Being Ignored

The motivation for the latest down leg are the expectations of a Fed rate hike and as a consequence higher rates. As an example the U.S. 2-year-swap-rate is now yielding 0.85% from trading near 0.75% before the FOMC meeting. This makes it more rewarding to hold Dollars over silver.

The price of silver is also weighed down by ample supply across other metals, like copper and steel. This may change in the future as Chinese Caixin Mfg. data, published overnight, suggests the Chinese economic cycle may have reached a bottom. However, the market is ignoring this for now, something we think it’s fair given the high imbalances in the base-metal-markets.

U.S. ISM Manufacturing printed 50.1 vs. an expected outcome of 50. This is better than our own estimations of a drop below 50. We note that ‘New Orders’ improved, from 50.1 to 52.9, while ‘Customers’ Inventories’ declined to 51 from 54.5. This is a good and indicates some stabilization for the ISM by December. This is supporting U.S. yields for now, making the outlook for Silver bearish.

We also note that the ISM ‘Employment’ component declined to 47.6 from 50.5, which implies the manufacturing sector is losing jobs. However, the interest rates markets are ignoring this for now.

The trend remains bearish below the below the $15.65 high,and we may reach the psychological level of $15. Beyond this level $14.45 is the next support level.

XAG/USD: Short-Term Bearish Below $15.65