Silver Poised to Test Higher Levels

Silver ETF prices edged higher on Wednesday continuing the trend which began on Monday.  News from a prominent Chinese newspaper help lift precious metals prices, as the paper inferred that the Chinese government is planning on offering stimulus to numerous cities and provinces. Although weaker than expected retail sales in the US created a slight headwind for silver ETF prices, the industrial side of silver is generating solid demand.

Inflation expectations were mitigated on Wednesday after news showing that producer prices in the US were less than expected.  The labor department reported that the Producer Price Index increased by 2.1% in July 2013, compared to a 2.5% annual rate in June.   On a month over month basis, PPI was flat compared to expectations of an increase of 0.3% month-over-month. It was energy cost fall which drove the decline in intermediate goods inflation this month.

The core producer price index, which excludes the most volatile components which are food and energy, increased by 0.1% month-over-month. Expectations were for a .2% increase, double what was reported by the BLS.

Silver prices received a boost from a slightly better than expected EU GDP report. Growth in the European Union expanded for the first time in 6 consecutive quarters.  According to the European Union’s official statistics agency GDP increased by 0.3% quarter over quarter compared to expectations of a 0.4% quarter over quarter increase in growth.

Silver prices generally benefit as US retail sales increase in value.  Unfortunately for silver bulls retail volume was a disappointment. According to the commerce department, July’s retail sales report climbed 0.2% month over month, a smaller increase than June’s 0.6% rise. Economists had forecast a 0.3% rise in retail sales.  Some positive figures that came out of the report include the 5.5% year over year increase in retail sales, which was driven by clothing and sporting goods.  Excluding automobiles, retail sales climbed by 0.5% in July.

Managed money lined up on the short side according to the most recent commitment of traders report released for the week ending August 6, 2013.  According to the CFTC, hedge funds reduced long positions by 978 contracts and increased short futures positions by 1,340 contracts.

The SLV ETF (Silver Trust) moved above resistance near the 50-day moving average on Monday and continues to forge higher toward target resistance that is designated by a horizontal trend line that comes in near 22.50.  Support on the SLV is seen near former resistance at 19.60.

With the 20-day moving average poised to cross above the 50-day moving average a medium term trend is now considered in place.  Momentum on the SLV is strong with the M ACD (moving average convergence divergence) index hitting its highest level in the past 12-months.  The trajectory of the MACD is upward after the index generated a buy signal in early August.  The RSI (relative strength index) on is printing near 67 which is on the upper end of the neutral range but below the 70 trigger level for an overbought condition.