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Silver Consolidates After Historic Fall

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Silver Consolidates After Historic Fall

Silver prices have eroded significantly over the past three months moving lower by nearly 30% since the beginning of April.  Prices have declined as the dollar has climbed making silver more expensive to borrow and less attractive against the greenback.  Silver is generally considered a preciuos metal that is used as a hedge against inflation which is nearly non-existent in the United States.

At the end of last week the Commerce Department released Personal Consumption Expenditures which is the Federal Reserves favored gauge of inflation.  Headline PCE came in near 1.1% on a year over year basis, which relfects very little inflation.  The Feds target levels is 2%. The core Personal Consumption Expenditures came in even lower which is PCE ex-food and energy.  With inflation expectations as reflected by the Treasury Protected Inflation bonds showing that future inflation is expected to remain low, silver is unlikely to gain traction for a long term uptrend.

Despite the decline in prices, hedge funds continue to buy and sell positions in silver at an equal rate according to the latest committtment of traders report released for the week ending June 25, 2013.  According to the CFTC, managed money increased long positions in silver by slightly more than 1700 contracts and increased short positions by slightly more than 1000 contracts.

Technically, silver prices are testing resistance near the 10-day moving average at 19.64.  A close above this level could see a quickly test of target resistance near 21.25.  Momentum is beginning to change as the MACD is poised to generate a buy signal as the spread (the 12-day moving average minus the 26-day moving average) is about to cross above the 9-day moving average of the spread.  The index is likely to move from negative to positive which would confirm the buy signal.  The RSI is printing near 36 which is on the low end of the neutral range but above the oversold trigger level of 30.

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