Silver: With 5 Months In The Red, Is A Turnaround Coming? 

After almost five months in the red, the price of silver doesn’t seem to be bottoming yet. Fears of a recession in the United States, and possibly the rest of the developed world, may delay a rebound by even more. 

Silver hit a two-year low of $18.01 an ounce on New York’s COMEX July 14. At the time of writing, it was down 19.4% for all 2022. Only two other commodities have had it worse this year: lumber, which is down more than 56%, and oats, which are off by over 42%. 

While Monday’s settlement of $18.85 came in nearly 5% above silver’s two-year low, the pullback doesn’t appear to have adequate momentum to catapult the industrial metal’s return to the $19 and $20 territories, say those tracking silver’s chart signals. 

Charts by skcharting.com with data powered by Investing.com

Silver’s bear market status compared with that of gold—which is down by just over 4% on the year—also shows the gap between the fortunes of the two precious metals which is typically just a few percent apart, not five time multiples.  

Since its March peak of above $26 an ounce that came on the back of the big commodities rally triggered by Russia’s invasion of Ukraine, silver has slid steadily each month; losing 8% in April; 6% for both May and June, 0.8% in July and now almost 7% for August.  

Silver’s prior high before the Ukraine war was $30.075, reached on February 1, 2021. 

Uncertainty in industrial demand for silver amid growing fears of a US recession is responsible for much of the slide over the past year and a half.

Silver—The Industrial Story/h2

More than 50% of silver’s demand originates from industrial use. As a malleable metal, it is just as good as gold for jewelry making. It is also a good conductor of electricity, and used extensively in the manufacture of electronics components. 

The transition to clean energy had also been expected to drive physical demand for silver, particularly for connections in electric vehicles and for components within solar panels. The rollout of fifth generation (5G) telecom networks was seen as another substantial source of demand.  

Monday’s tumble to a near one-month low of $18.61 for COMEX silver also came on the back of a six-week high in the dollar, which acts as contrarian trade to most precious metals, particularly gold. 

h2 Silver—The Dollar Story/h2

The dollar has been on a tear over the past year as the US Fed embarks on its most aggressive rate hikes in a generation to tame inflation raging at 40-year highs due to trillions of dollars of aid and other stimulus extended during the pandemic. 

The Dollar Index, which is pitted against six major currencies, has declined in just one of the past eight months and is up more than 11% this year.  

Monday’s rally in the greenback came amid speculation that the central bank will opt for a 75 basis point (bps) rate hike in September—its third straight increase of that size—versus initial bets for a 50 bps hike. 

The dollar gained new impetus as investors awaited insights on the future path of interest rates from a speech to be delivered by Fed Chair Jerome Powell at the central bank’s annual conference in Jackson Hole, Wyoming on Friday. 

If the 75 bps hike proves to be true, the Fed would have increased rates by a total 300 bps since March, when it began adjusting them upwards following the two-year long coronavirus pandemic. 

Silver—Where To From Here?/h2

Sunil Kumar Dixit, chief technical strategist at SKCharting.com, said at its present trajectory and lack of bullish drivers, the spot price of silver could break lower into $17 per ounce territory. He adds:

“Failure to make sustained break above $18.90 and $19.50 will resume selling pressure for a quick retest of the $18.13 low on July 14, followed by $17.47 on the weekly lower band.”

Dixit noted that spot silver has undergone six days of consistent beating as bears overpowered the metal’s attempts to rebound, sending it from $20.88 to $18.70.

“As metal traders await economic data as well as the Fed’s Jackson Hole Symposium outcome, the oversold stochastic reading of 8/7 for spot silver shows muted awaiting triggers for decisive moves.”

He said price strength and stability above the 5-Day Exponential Moving Average of $19.25 and the 5-Week EMA of $19.47 will signal resumption of an up move that could retest the swing high of $20.88 and the weekly Middle Bollinger Band $21.08 followed by 38.2% Fibonacci level $21.50. 

“If rebound continues, expect next hurdles at the 50-Week EMA of $22.26 and the 50% Fibonacci level of $22.54.”

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Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold a position in the commodities and securities he writes about.