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Silver follows gold higher

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Silver follows gold higher

Silver prices have followed gold higher in the latest rebound from recent support levels.  The short squeeze seen in gold prices on Monday reflects what occurs when numerous hedge funds covered precious metals positions as referenced by the most recent commitment of traders report released on Friday.

Silver futures positioning did not experience the same short covering that occurs in the yellow metal. Managed money reduced overall positions according to the COT report released by the CFTC for the week ending July 16, 2013.  The latest report showed that managed money reduced long positions and short positions by a couple of hundred contracts.  This compared to the 19K that was covered in gold and the 1,700 that was covered in palladium which was nearly 19% of the total open interest in the precious metal.

Similar to gold the silver forward interest rate curve has gone to a premium which is considerably rare in precious metals.  Both gold and silver have pushed into a situation where the term structure is in backwardation in the front of the curve, making it more expensive to purchase spot silver and gold than second deferred contracts in the futures market.

Silver prices surged on Monday moving up to resistance that is created by a downward sloping trend line that attaches the highs in April to the highs in May and June.  A close above 20.30 would likely lead to a test of the June highs near $23.00 per ounce.

Momentum is climbing with the MACD expanding to the highest levels seen in the past three months.  The trajectory of the index is positive likely pointing to higher prices.  The RSI (relative strength index) is printing near 50 which is in the middle of the neutral range.

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