On Tuesday, silver prices continued to decline, immediately breaching below the $18.75 threshold, and now threaten to close the gap from the previous trading session. Silver is currently somewhat oversold, so I would not be shocked to see a short-term rebound; however, this does not necessarily mean that I will be buying in this market. Ultimately, I believe the longer-term outlook for silver is relatively weak, particularly given the weak global economic outlook.
Remember that silver is extremely sensitive to what happens in manufacturing, and manufacturing will slow down due to a lack of demand. However, interest rates and the US currency also have a significant impact on silver, and if the price of silver begins to rise, I will only purchase it if the US dollar begins to decline. A decline in interest rates also benefits silver, as it becomes somewhat more appealing to pay for storage of metal as opposed to paper.
If this market were to fall below the $18 level, silver’s bottom would almost surely fall out, possibly bringing this market to the $15 level and subsequently the $12 level. If we do get a solid rally from here, I believe it will be tough to break above the $20 level, not only due to psychological factors but also because the 50-Day EMA is beginning to break through that region. In either case, it will be quite volatile, so you should maintain a respectable position size, although I’ll be the first to admit that I prefer gold and silver in the current market climate.