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Silver prices have been clobbered into bear-market territory, courtesy of a strengthening dollar and rising bond yields, and the near-term picture looks dull for the metal.
As of Wednesday, silver futures SIZ6, +0.79% had sunk 20.1% from their 52-week high of $20.666 an ounce, reached on Aug. 2, according to Dow Jones data. An asset’s loss of 20% or more from a most recent high is considered bear-market territory.
Silver futures for December delivery managed to catch a break on Friday, rising roughly 0.5% to $16.48.
Silver and gold prices “remain troubled by the current focus on rising dollar and bond yields. The resilience seen among investors using exchange-traded products has started to fade with reductions seen the past nine days,” wrote Ole Hansen, head of commodity strategy at Saxo Bank, in a note Wednesday, ahead of the Thanksgiving Day holiday.
Silver prices, along with the iShares Silver Trust SLV, +0.71% exchange-traded fund, have lost roughly 10% since Donald Trump prevailed over Democrat Hillary Clinton in the Nov. 8 U.S. presidential election. His win sent Treasury yields TMUBMUSD30Y, +0.00% surging, and prices lower, as investors prepare for possible inflationary pressures from Trump’s plans for mass-scale spending on infrastructure projects. Higher inflation hurts long-term bonds as it eats into the value of interest payments.
Meanwhile, the dollar has climbed as investors widely expect the Federal Reserve to raise interest rates next month and continue raising them in 2017 if inflation picks up. The ICE U.S. Dollar Index DXY, -0.19% , a gauge of the dollar’s strength against a basket of six currencies, has recently soared to levels not seen in nearly 14 years.
Those moves have sapped silver prices. Higher interest rates are typically negative for nonyielding silver and other metals, while dollar strength can hurt demand such dollar-denominated metals.
Kitco.com, a precious metals dealer, this week said investors have been liquidating long positions in the silver market. Money-managed speculative gross long positions in Comex silver futures have fallen by 5,208 contracts to 64,016, while short positions rose by 325 contracts to 16,177, data from U.S. Commodity Futures Trading Commission show.
“December silver bears have the firm near-term technical advantage as prices hit a five-month low,” wrote Jim Wyckoff, senior analyst at Kitco.com, in a Friday note.
“The next downside price breakout objective for the bears is closing prices below solid support at $16.00,” he said. But the next upside breakout would be prices that closed “above solid technical resistance at $18.00 an ounce.”
But looking into 2017, “we are still not convinced that yields and the dollar will move much higher beyond January, “ wrote Hansen. “If that turns out to be the case and inflation continues to rise, we could see support for [silver and gold] get re-established.”
