Silver price edging towards key resistance level

2012-NOV-30

After Wednesday’s gold and silver price plunges – no doubt linked to options expiration – the metals have recovered. Gold was fairly stable over the course of yesterday’s Comex pit-session in New York, up just 0.62%, but silver had a strong session – posting gains of close to 2%. As usual, this coincided with gains in the EURUSD, crude oil, copper, and European equities, in another of those “risk on” days at the market.

For over a year now, silver has been confined to a trading channel between roughly $26 and $35.50. It will be very interesting to see how it performs if we approach this upper boundary. We can expect strong resistance from the bears, as any sign that silver is consolidating above this price will act as a strong incentive for speculative money to race in on the long side, chasing the price rapidly higher in the manner we saw during late 2010 and early 2011.

Another day, and yet more ominous news regarding the US dollar’s reserve currency status – this time courtesy of the IMF, which is said to be considering including the Australian and Canadian dollars in its basket of reserve currencies. This “basket” is partly reflected in the makeup of the IMF’s own unit of account: Special drawing rights (SDRs).

Tangent Capital’s Bob Rice gives some good background info on SDRs in this video. Promoting new currencies to reserve status diminishes the importance afforded to the existing reserve currencies – the US dollar, British pound, euro, Swiss franc and Japanese yen. As Rice discusses, the big question is what kind of role the Chinese yuan will take on as an SDR component in the years ahead.

To which we and others would add: what role might gold play in the future composition of SDRs?