China's Currency Move Propels Silver Prices to New Heights
EDITOR'S NOTE: In the realm of silver, a perfect storm gathers momentum, pushing prices skyward as China's strategic maneuver to buoy its economy triggers an unforeseen consequence: a resounding short squeeze that propels the metal nearly 4% higher in a single day. The echoes of intervention by the People's Bank of China reverberate, birthing a transformation in market sentiment. Ole Hansen, head of commodity trading at Saxo Bank, traces the shift to China's intervention in currency markets, causing a ripple effect that bolsters silver alongside its industrial counterpart, copper. With technical barriers shattered and bearish sentiment receding, a renewed focus on industrial demand and a dash of safe-haven flows steer silver's trajectory. Amidst the orchestration of factors, the metal surges, captivating analysts' attention, and igniting hopes for sustained momentum.
A perfect storm is brewing in the silver market as the expected easing from the Chinese government to support its faltering economy is squeezing shorts in the marketplace and driving prices significantly higher.
September Silver last traded at $24.355 an ounce, up nearly 4% on the day. The precious metal is seeing its best day since mid-July as it regains critical technical levels.
Ole Hansen, head of commodity trading at Saxo Bank, said silver’s current short squeeze started building last week when the People’s Bank of China (PBoC) intervened in currency markets to support the yuan after it hit a 16-year low against the U.S. dollar.
“The stronger yuan forced a focus change in copper, and with that also silver,” Hansen said.
Analysts said that the central bank’s easing measure at the start of the week could provide further industrial support to the precious metal.
The renewed focus on industrial demand came as sentiment in silver was at extremely bearish levels. Three weeks ago, speculative interest turned net-short by nearly 4,000, according to data from the Commodity Futures Trading Commission. Updated data published last week saw bearish sentiment hit its highest level since early March.
“So, short-covering and tailwind from a recovering industrial metal sector are [in my opinion] the key drivers, spiced up with added momentum following the technical break above the 21-, 50- and 200-day moving averages, all three located between 23.31 and 23.51,” said Hansen.
Analysts also noted that both silver and gold are benefiting from some safe-haven flows as disappointing economic data pushes U.S. bond yields off their recent highs. Although the Federal Reserve could maintain higher interest rates for longer, the hope that they are done raising rates is generating some bullish interest in gold and silver, according to some analysts.
Although short squeezes by nature aren’t sustainable, some analysts said that silver has room to move higher in the near term. Julia Cordova, founder of Cordovatrades.com, said she is watching a bid resistance zone between $24.495 and $24.58 an ounce.
She added that in the medium term, the gray metal needs to hold support over $23.07 to worry longer-term bears in the marketplace.
Originally published by Neils Christensen at Kitco
