Silver Price Underpinned by Dollar Retreat

Silver made net gains on Tuesday with the dollar’s failure to make a renewed advance helping to trigger fresh demand for precious metals in subdued conditions.

Prices were trapped in narrow ranges during the Asian session with no attack of significant technical levels and consolidation around $19.75.

The latest Chinese CPI inflation data was in line with expectations as the annual rate fell slightly to 1.8% from 1.9% previously and was the lowest reading for six months.

Producer prices fell 1.7% in the year to July from 2.6% previously with markets expecting a slower improvement to -2.0%. This was the slowest rate of decline since October 2014 and will ease pressure on the People’s Bank of China (PBOC) to ease monetary policy aggressively.

Overall risk appetite held firm in European trading on Tuesday, although equity markets were vulnerable to a period of consolidation after strong gains.

There was a slightly weaker than expected reading for the US NFIB small-business confidence index as it edged higher to 94.6 for July from 94.5 previously.

The US wholesales inventories data recorded a 0.3% increase for June following a 0.2% gain for the previous month, which dampened expectations of higher US interest rates. A weaker than expected productivity reading also increased concerns over permanently subdued growth conditions.

The dollar drifted weaker during the New York session with EUR/USD moving back above the 1.1100 level while the overall trade-weighted index declined by around 0.20% on the day, which also had some positive impact on precious metals.

Gold prices moved higher to test resistance just above $1,340, which helped drag silver prices higher with a peak close to $19.90 before hitting some resistance with a fresh rally in equity markets tending to push silver prices slightly lower again.

Dollar trends will continue to be watched very closely in the short term with the potential for choppy conditions, although markets may find it difficult to break out of narrow ranges in the short term, especially with a seasonal drop in volumes.

Silver Prices Daily Chart

silver 09-08-16

Tim is a contributing author to He is an economist and has been involved in financial markets for over 20 years as an analyst. He specialises in global economic trends, macro policy and central banks. Extensive knowledge, experience and data mining is used to anticipate trends in equities, bonds and forex with a contrarian slant. He is a graduate of the University of York with a degree in Economics/Econometrics.