Silver Market Awaits Resolution of the Fiscal Cliff

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Risk of U.S. Credit Downgrade Supports Silver, New Japanese Government Promises to Print Money and Bolsters Silver, Where is Silver’s Immediate Support and Resistance Headed into 2013?

Silver Market Awaits Resolution of the Fiscal CliffSilver finished the last full week of the year basically flat at almost where it started the week. While silver opened the spot market week of 12/24 at $30.10, it finished Friday 12/28 spot markets at $30.01.

This was not a heroic final week for 2012 performance that still sees the metal up slightly for the year. Silver did manage to hold the important $30 water mark while its big bother gold could not stay above its 200 day moving average in the $1,661 range.

The white metal prices were supported in this thinly traded Christmas holiday week by the still unresolved US fiscal cliff situation, by the growing risk that the ratings agencies will downgrade US credit again, by the new Japanese government promise to print more money, and by the near term technical support levels.

Silver Market Awaits Resolution of the Fiscal Cliff

Uncertainty is often good for precious metal markets, and the fiscal cliff continues to keep risk off trades in style. All this past week, investors waited to see if Congress and the President would come back from their Christmas break to address the expiration of the tax cuts and the government spending cuts that are scheduled to kick in the first week of the New Year.

By the end of the week the President had cut short his holiday in Hawaii and returned to Washington to call on Congress to resume negotiations and work out a deal. Speaker of the House John Boehner announced that he would recall Congress into session for Sunday night, and this gave markets some hope that the quarreling factions might still reach a last minute or early January deal. Silver traded a little stronger at the time, as did gold, as the uncertainty raged on with still no deal reached by the end of the week.

Risk of U.S. Credit Downgrade Supports Silver

An even bigger factor that held silver above its psychologically important $30 support line by the end of the week is the issue of the U.S. credit rating. The U.S. credit ratings are once again in danger of the agencies downgrading them.

Moody’s and S&P have warned that if the U.S. plummets over the fiscal cliff then it will risk another sovereign credit downgrade. There is also the issue of the $16 trillion debt ceiling that has been reached. Congress has yet to extend this important borrowing capacity, and Treasury Secretary Timothy Geithner can not borrow any more money until the ceiling is lifted.

He began to use extraordinary accounting measures to extend the government’s ability to pay its bills for another few weeks to two months in the final days of 2012.  The same issue of debt ceiling and potential default caused S&P to downgrade the U.S. Triple AAA rating last year in the first place. Silver continues to hold up as the country waits to see if this very bullish for precious metals downgrade takes place.

New Japanese Government Promises to Print Money and Bolsters Silver

This past week the new Japanese government headed by Prime Minister Abe took power and began to make good on their campaign promises. They have pledged to expand fiscal stimulus to try again to lift the Japanese economy. They have also met with the central bank and encouraged them to print money in unlimited quantities and to raise the inflation target for Japan.

These actions supported silver and gold and would have probably made a greater impact on the price of the metals for the week if more precious metals traders had been working instead of away on week long Christmas vacations.

Where is Silver’s Immediate Support and Resistance Headed into 2013?

Silver clearly finishes the year with a great amount of supporting fundamental factors for its safe haven bid status. It remains to be seen how the industrial side of the metal will be impacted with world economic performance in 2013.

Technical levels for silver remain pretty close to where they were in the prior weeks. The silver bears are still in command technically near term as silver is in a four week downtrend. Silver merely needs to breakout above $31.50 an ounce technical resistance for the bulls to regain technical command.

In the meantime, silver continues to find solid weekly support at $30, and then daily support at $29.71 and $29.63, the daily lows of the past two weeks. So long as the metal can stay above major technical support of $29, it should not suffer additional major setbacks.

Take Away On Silver Market Prices

Silver finished the year with seven analysts that include Morgan Stanley, Barclays, Societe General, UBS, Commerzbank, TD Securities, and BNP Paribas all having updated bullish predictions for 2013. While it is in a near term bearish technical range, all of the fundamental news continues to be promising.

Between threats that the ratings agencies will downgrade the U.S. credit, fiscal cliff problems, and central banks like the Japanese and U.S. continuing to print money, the white metal should be in store for a Happy New Year 2013.

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