Silver eyed on soaring speculative sentiment

The 15% rise in silver from its 14-month lows reached at the end of May has been attributed to  inflationary worries over the latest US reports (CPI & PCE) as well as classic short covering of a consolidation period that lasted far too long. There are also the usual chatter about the planned de-dollarization from Russia’s Putin and the creation of the new BRICS Development Bank with $100 bln in seed money.  China’s internationalisation of its currency may not be a direct threat to the US dollar, but its operation of 20 different currency swap centers in Western Europe and Asia may not be ignored in the long run. Yet, these are all speculative and long term issues.

Silver’s speculators soar

Bearish sentiment in silver seemed to have sharply reversed in the Comex exchange, where net speculative commitments rocketed 436% from a net long balance of 766 contracts in the week of June 3^rd to a net long position of 4,106 contracts. Net longs in silver went on to rise 224% and 120% in the subsequent two weeks. As of the week of July 15, net speculative longs have reached 49,278 contracts, the highest since October 5^th.

Soaring silver metal interest in mid-June was partly attributed to the June 6^th release of the employment report, showing unemployment at a fresh six-year low of 6.3%, the June 17th release of the May CPI showing a 2.1% print for the first time in two years and the June 18th post-FOMC conference Fed by chairwoman Yellen playing down the recent upside surprises in inflation figures. The price action in gold has been largely similar, but nowhere near the magnitude of those weekly spikes in sentiment.

Farewell to silver fixing suppression

In May, the London Silvering Market Fixing Limited finally announced it will no longer administer the London silver fixing as of August, following Deutsche Bank’s departure of the of fixings and the lack of willing players to fill the gap. Consequently, the London Bullion Market Association (LBMA) selected the CME Group /Thomson Reuters to operate the new price fixing after August 14. The CME/Reuters said in its initial proposal that its silver fix would be electronically OTC transaction-based.  Several investigations have been made on whether price manipulation during the London silver fixing led to the suppression of silver prices. Others have blamed the Federal Reserve and exchanges in dampening the elevated rallies from three years ago to preserve the US dollar’s purchasing power.

The chart below shows silver on the cusp of a potential breakout from its two-year triangle, but the extent of the rally remains doubtful. A break above $22.00 resistance would be valid in the event of a weekly close above the level, which could pave the way for an additional 15% run-up towards the $24.20, coinciding with the 100-week moving average. If bond yields lose further ground and the Federal Reserve is deemed unable to contain inflation as well as stimulate growth, then speculators could begin talking about the $26-27 territory.