Silver Market Update – Week Ending September 14th, 2012

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German Constitutional Court Approves European Stability Mechanism, Italian Bond Auction Shows Results of Aggressive ECB Quantitative Easing, Fed Pulls The Trigger on Quantitative Easing to Infinity.

German Constitutional Court Approves European Stability MechanismSilver found yet another few reasons to continue its bullish breakout run in the week that ended September 14th. Last week, the European Central Bank promised to print as much money as necessary to support the bond markets of weaker European countries.

This week, German institutions had their chance to put their seal of approval on the European sovereign financial bailouts.  The Federal Reserve also sat down in a two day meeting that had the potential to move silver markets as well.

While silver started the week at a strong $33.34, just below where it closed the previous week, it managed to ramp up over a dollar more over the week to make yet another multi month high at $34.67 in its relentless quest towards $37 per ounce. This marks a sixth week in the silver market uptrend.

German Constitutional Court Approves European Stability Mechanism

Wednesday, the world markets breathed a collective sigh of relief as the German Constitutional Court passed on its opportunity to strike down or delay the European bailout fund known as the European Stability Mechanism. German approval for the muscular bailout fund of over half a trillion dollars boosted stocks around the globe as well as European stocks and the Euro. As the Euro runs up, gold and silver usually go along for the ride, and it proved to be no exception this past week.

Italian Bond Auction Shows Results of Aggressive ECB Quantitative Easing

Spanish and Italian bond yields have increased most every week for the past months as the European Sovereign Debt Crisis continued to worsen. Their rates declined after the European Central Bank acted last week and again after the German court ruling.

This past week, Italy held a long term bond offering that was a success because of the conviction that the ECB will buy up any extra debt that remains at the auctions. Stronger auctions like this argue for the health of the global economy, and this supported silver prices this week too.

Fed Pulls The Trigger on Quantitative Easing to Infinity

The biggest mover of silver prices for the week that closed September 14th turned out to be the Federal Reserve. Previously, they talked up silver and gold prices at their annual symposium in Jackson Hole.

This week, they held their two day meeting and announced yet another unconventional and fresh Quantitative Easing program, the so called QE3. They have committed to purchase a hefty $40 billion worth of mortgage backed securities until further notice. This means that they will print an additional $40 billion of new dollars every month until the economy improves enough for the unemployment rate to fall substantially.

Besides these dramatic measures, they announced that they will keep interest rates artificially low at about 0% until at least mid 2015. Such accommodative monetary policy that is the loosest on record caused precious metals prices to roar Thursday and Friday. As the U.S. Dollar index plummeted to a four month low, silver that is valued in U.S. dollars rose apace. There is nothing like a good healthy fear of inflation to kick the white metal up a notch.

Silver Price Direction from Here

The next step up for silver is to vault and close above the major technical resistance point of $36 an ounce. There is also some resistance at $35 and $35.50 per ounce. Technical support now rests at $32.51, $34 and $34.50 per ounce. The six week uptrend argues for higher prices in the near future.

Take Away On Silver Market Prices

Silver prices made a new six month high by the end of this past week. The European Central Bank showed that money will now be printed in Europe where there was a hesitancy to do so before when they committed to buy bonds in unlimited quantities, as at the Italian auction.

The Federal Reserve proved that they would not be outdone by their European counterparts when they came out swinging with a surprisingly powerful QE3. Their additional $40 billion in new money per month equals nearly half a trillion new dollars per year that will go straight into the U.S. economy.

Inflation is sure to follow at some point, and all of this only encourages silver prices to go higher. So long as there are not only words but action from the major central banks of the world, you can expect silver markets to continue to run higher in the weeks and months ahead. Eventually there will have to be some consolidation, but for now, the silver market bulls continue to be in firm command of price action.

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