• 485 days Will The ECB Continue To Hike Rates?
  • 485 days Forbes: Aramco Remains Largest Company In The Middle East
  • 487 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 887 days Could Crypto Overtake Traditional Investment?
  • 892 days Americans Still Quitting Jobs At Record Pace
  • 894 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 897 days Is The Dollar Too Strong?
  • 897 days Big Tech Disappoints Investors on Earnings Calls
  • 898 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 900 days China Is Quietly Trying To Distance Itself From Russia
  • 900 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 904 days Crypto Investors Won Big In 2021
  • 904 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 905 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 907 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 908 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 911 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 912 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 912 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 914 days Are NFTs About To Take Over Gaming?
What's Behind The Global EV Sales Slowdown?

What's Behind The Global EV Sales Slowdown?

An economic slowdown in many…

How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

  1. Home
  2. Markets
  3. Other

Chinese Day Traders Fuel Rally in Silver says Saxo Bank

Ole Hansen, head of commodity strategy for Saxo Bank says Chinese day traders are what's behind the limit move up on silver, yesterday.

Please consider Chinese Day traders Love Silver -- As Long it Behaves.

Crowd of Chinese


Synopsis

  • Silver surged to a two-year high Monday before the rally hit a wall above $21/oz

  • Precious metal was up nearly 50% year-to-date at its intraday peak

  • Surge occurred in Asian session as commodity trading venues in China proliferate

  • Silver's rise mirrors a similar surge in steel rebar and iron ore futures in April

  • Silver unlikely to repeat the extent of the April correction for steel and iron futures

The biggest two-day surge in silver since 2011 has raised a few questions about the sustainability of the current rally and what is driving it.

Speculative positions held by hedge funds in both gold and silver have reached record levels while demand for exchange-traded products especially those in gold have continued to rise on an almost daily basis.

The 13% bottom-to-top rally from Friday to Monday in silver could represent a short-term top in the market, not least considering the 44% year-to-date rally seen already. During the rally in Asia Monday, several major stop levels got hit on Comex silver which could indicate that many short positions have now been flushed out.

It was not a coincidence that the Monday surge occured during Asian trading hours. When it comes to commodity trading, the Asian session was often in the past a period of tranquility with limited market action.

During the past week, volumes have spiked to levels last seen during the April frenzy. What happened Monday was that silver fairly quickly went limit up at the 6% daily cap in response to the strong COMEX close on Friday. This helped trigger a spill over surge on Comex silver which went through several major stop levels before retracing after hitting a two-year high above $21.

The fact that the traded volume goes up while the open interest goes down is a clear indication that day traders have taken over for now. As long this continues, we are likely to see bigger daily price swings with the Asian session seeing most of this.

Do these observations lead to a warning that silver could be in for a collapse similar to that in iron ore and steel rebar? No is probably the shortest answer. Silver is a much more globally traded commodity than some of the other futures currently available for trading in China.

The latest surge has triggered a great deal of attention and with both XAGUSD and XAUXAG reaching and temporarily breaching their technical extension levels, further upside now hinges on the support from a continued rally in gold.

The XAUXAG ratio completed the extension of the March to April move yesterday when the ratio temporarily hit a low around 64.2. With the ten-year average at 60, silver is no longer as cheap as it was back in March when it hit 84.

On that basis, continued demand for precious metals should see silver continue to outperform but at a much slower pace with the relative value increasingly coming back into line with longer-term averages.


Silver Weekly Chart

Weekly Silver Chart

 

Back to homepage

Leave a comment

Leave a comment