Silver markets have initially tried to rally during the trading session on Tuesday but gave back the gains rather quickly as we continue to see it reach towards the $22.75 level. Below there, we could really start to break down and go looking towards $21.50, as silver is highly volatile and quite frankly struggling with the idea of a stronger US dollar. Silver is especially sensitive to the greenback, so it will be interesting to see how this plays out over the longer term. I think that given enough time; the usual correlations will come into play but it is also starting to get a little bit oversold.
I am looking for signs of exhaustion to sell after rallies, as I do think this market probably has a bit of a bounce coming. That being said, I would not be a buyer because of all of the negative pressure. I think that the overall trend is still favoring the downside, but we obviously need to see some type of value brought back into the market as far as short-sellers are concerned. I do not necessarily think that we are looking at a scenario that you can plainly see is volatile and unpredictable. We have seen a lot of noise around the idea of inflation and tapering, but while most retail traders look at silver as a potential hedge against inflation, what they do not pay attention to is the fact that bonds can offer real yields eventually, and that in and of itself is much more profitable than paying for storage of silver, which is much more expensive than storing gold because it takes so much more of the metal to make the same amount of cash equivalent.
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This article was originally posted on FX Empire