Silver price gains ahead of Crimea referendum

London (Mar 13)  Silver is today trading near one-week highs bolstered by a flight to safe-haven assets ahead of Sunday’s snap referendum on the future of Crimea, which is supposedly set to decide whether the region would stay in Ukraine or join Russia. The standoff between the West and the Kremlin over Ukraine will most likely be the main driver of bullion prices at least until the end of the week.

HSBC analysts emphasize that “geopolitical events can have a pronounced, but sometimes short-lived impact on gold (and silver)”.

Silver is currently fluctuating around $21.41, the 23.6 percent Fibonacci retracement of the uptrend from $18.99 to $22.16.

G7 leaders yesterday issued a statement on the situation in the Black Sea peninsula, asking Moscow “to cease all efforts to change the status of Crimea contrary to Ukrainian law and in violation of international law”. The leaders emphasized that “any such referendum would have no legal effect”, urging Russia to de-escalate the conflict in Ukraine “immediately” and “withdraw its forces back to their pre-crisis numbers and garrisons”.

Russia’s annexation of Crimea would be a clear abuse of international law, but it seems that Russians support such a drastic move. The approval rating of President Vladimir Putin has jumped by 10 points to 71.6 since the start of the year seemingly on the back of Moscow’s efforts to seize Crimea, which is an autonomous region of Ukraine whose two million inhabitants are mainly ethnic Russians.

Ahead of the Crimean referendum, the price of silver is at a make or break moment. The Relative Strength Index on the daily chart has been in an uptrend since late-November, but the momentum gauge is currently facing critical resistance that has limited the bullish impetus since 18 February (see left chart above). The precious metal has today surpassed its resistance projected from the high on 24 February, but the bulls may need to wait for a daily close above the critical line before they open the champagne.

“While it is still possible that the formation since silver’s breakout is a bullish flag, the flag retraced a considerable part of the breakout, which is not ideal”, yesterday wrote technical strategists at ScotiaMocatta - the bullion arm of Scotiabank and a market-maker on the London Bullion Exchange. “We are currently neutral until silver can make a break out of its current downtrend [from the high on 24 February at $22.16].”

The current intraday high at $21.44 is marginally above yesterday’s $21.396, but it still below last week’s peak of $21.7. To the upside, traders will monitor how silver will react near the 61.8 percent Fib of the downswing from $22.16 to $20.59 at $21.56. South-bound, support may come just below the $21 handle or near $20.96 - the 23.6 percent Fib.

Source: invezz