Silver Prices Hit By Profit Taking As Volatility Remains Elevated

Silver was subjected to a correction following sharp gains the previous day as liquidity levels increased following the US Independence Day holiday.

Volatility remained very high on Tuesday following the 7% spike to two-year highs above $21 per ounce seen on Monday. There had been evidence of speculative activity during the past few sessions, increasing the risk of a sharp correction, with Chinese investors notably significant in this context.

Global risk appetite deteriorated during the day with equity markets vulnerable to a correction after strong gains last week. There was a very sharp slide in silver just after the Asian close with prices sliding to lows near $19.6 from $20.5.

Strong gains in global bond markets were the most important feature during the day with yields falling sharply across the G7 area. US 10-year note yield declined to fresh record lows just below 1.38% with the German benchmark yields also at a record lows below -0.17%. Low yields will continue to provide underlying protection to precious metals including silver.

In currency markets, the dollar made gains against European currencies as Sterling retreated to fresh 31-year lows. Commodity currencies also lost ground while the yen advanced as fear tended to dominate once again which provided some net silver support.

The Bank of England warned over financial stability risks to the UK economy following the referendum vote, although it was confident that the financial sector could weather the storm, especially as bank funding costs had not increased since the vote outcome and stress tests assumed much more challenging conditions.

US economic data had little impact with factory orders declining 1.0% for May following a revised 1.8% gain the previous month while the IBD consumer confidence reading was weaker than expected with a slide to 45.5 for June from 48.2 previously.

The dollar made further headway against European currencies late in the European session as EUR/USD dipped below 1.1100, which tended to drag silver prices slightly lower and prices consolidated around $19.8.

Overall trends in risk appetite will continue to be monitored very closely in the short term ahead of key US data releases over the second half of the week; high volatility likely to remain the main silver market feature.

****

Written exclusively for Gold-Eagle by Paul Rosenberg, market analyst for EconomicCalendar.com