Silver prices are little changed today despite elevated risk-aversion and gold prices being close to breaking its December high of $1088.80.If gold would break its $1088.80 high then the trend for it would turn bullish, and this would suggest that silver prices should be trading higher.
If it was down to gold prices exclusively then a regression model (based on daily prices of the last 6 months) suggests silver should be trading at $14.38 (currently at $13.99). In other words, silver is in desperate need to catch up with Gold and would be close to breaking its down-trend.
This can be used by traders looking for silver prices to catch up with gold. These traders would use the January 4 low at $13.77 as a base for their bullish view.
The alternative scenario (and my main scenario) is for Gold to remain capped by the $1088.80 high and for traders keep buying the dollar despite an economic slowdown in China, as suggested by this week’s disappointing PMI Mfg. and PMI Services figures.
This makes sense as at this stage as the Fed would probably need to see a softer labour market and inflation not picking up before steeping back from raising rates further. And this I something I think today’s FOMC minutes will echo.
With this in mind I suspect traders will most likely opt fade a rally near $14.25 with stops above $14.40 if price would to rally. On a successful break to $14.40, silver may reach the December 2015 high at $14.62.
How do you know if a trade is good or not? You could use the risk-reward ratio as outlined in the The Traits of Successful Traders Guide.
Silver | XAG/USD
Created with Marketscope/Trading Station II; prepared by Alejandro Zambrano
--- Written by Alejandro Zambrano, Market Analyst for DailyFX.com
Contact and follow Alejandro on Twitter: @AlexFX00
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