Silver price rise constrained as copper tanks

London (Mar 12) The price of silver has advanced so far today but the focus of the markets is very much on copper, which has touched nearly a four-year low of $2.924 per pound. Even though gold today reached a 25-week high at $1367.30 per ounce, silver has failed to attract avid buyers, seemingly constrained by copper’s meltdown.

Since the US Federal Reserve announced the start of QE tapering on 18 December, silver has gained roughly 5.5 percent, gold has gained about 10.5 percent and copper has shed just over 11 percent (see left chart below).

Copper today sank to what is almost a four-year low at $2.924 after Shanghai futures in the commodity had again dropped overnight UTC by their 5.0 percent daily limit, falling to the lowest level since July 2009.

Silver yesterday gained marginally after trading within a relatively wide range of more than three percent - the low and high for the day were logged at $20.639 and $21.29 respectively.

The precious metal yesterday followed a very similar price pattern to that seen on Monday, with sellers of last resort showing up at the Comex open (see right chart above). So far today, silver has stood up to pressure from North American short-sellers, reaching an intraday high of $21.125 at the start of the US session. But the bulls have yet to lift the grey metal above yesterday’s high of $21.29.

Right now, silver is trading at around $21.101, up 0.96 percent intraday.

“Price action has been very disappointing and RSI has fallen from the 76 level to present levels below 50 since the February 14th breakout”, write technical strategists at ScotiaMocatta – the bullion arm of Scotiabank and a market-maker on the London Bullion Exchange. “It is now looking like that may have been a false break.”

 Last week, a privately-owned Chinese solar panel producer, Shanghai Chaori Solar, missed an interest payment on its one billion yuan ($163 million) 2017 note, becoming the PRC’s first-ever domestic bond default. The news has sent shivers of risk aversion through global financial markets and pushed the price of copper below the $3 handle.

Copper is regarded as a proxy for China’s economic fortunes and along with iron ore is widely used as collateral by Chinese companies unable to secure bank loans with conventional security.

Steve Scacalossi, director and head of sales global metals at TD Securities, writes: “With the stress in the credit market and tightening controls unwinding of the carry trades would have an impact on the spot price—so it is difficult to gauge how much of the selloff is due to falling growth expectations and how much due to unwinding of carry trades.”

Source: Invess