The price of silver has rallied strongly over the past five months, rising from a March low to a seven-year high in August. Will the market break through resistance to further extend the gains, or is it time to sell the metal if it hasn’t broken through the $30/oz level?
The silver price trend, as with the gold market, has been driven higher in 2020 by central bank policies favoring low interest rates and a weaker US dollar, as countries are coping with the fallout from the Covid-19 pandemic. The US dollar fell to its lowest level in two years against a basket of major currencies, which added to the rise in commodity prices, including precious metals.
This silver price analysis examines recent price movements in the market and what analysts expect from the commodity in the near term. Scroll down for a video in which David Jones, Chief Market Strategist at Capital.com, provides insight into silver performance and uses technical analysis to set up a potential trade.
Silver Price News: Rally Accelerates Faster Than Gold’s As Industrial Demand Begins To Recover
Silver prices in 2020 have been very volatile, starting the year just under $18 an ounce and then dipping below $12 an ounce in March 2020 when the markets sold off. financial. Silver rallied quickly as investors sought a safe haven in precious metals, and in July it rose from the $18/oz level to $24/oz, making further gains in August to approaching $30 an ounce. Since then, the metal has consolidated in the $25-$29 per ounce range.
Gold has hit new all-time highs in recent weeks, in line with dollar weakness, increasing interest in the precious metals complex, including silver.
“The volume of silver transferred in July increased by 14.2% to 316 million ounces, with a surge in the price of silver during the month causing the corresponding value transferred to increase by 31.5% m /m to $6.45 billion,” said the latest data from the London Bullion Market Association (LBMA) shows.
The gold-to-silver ratio – the number of ounces of silver needed to buy an ounce of gold – fell for a third consecutive month in July to 90.4, with silver prices now accelerating much faster than those of gold.
“July’s price jump reflected renewed interest from potentially non-gold price retail investors,” analysts at Heraeus Precious Metals noted.
Silver price news has become increasingly bullish as investment demand has been coupled with growing industrial demand for the physical metal, with manufacturing activity beginning to pick up following the Covid-19 shutdowns.
JP Morgan’s global manufacturing PMI for August hit a 21-month high of 51.8, down from 50.6 in July and above the 50 mark that separates growth from contraction for the second straight month – after a five-month decline. “The global manufacturing recovery accelerated in August, with the highest rates of production expansion and new orders since mid-2018,” said Olya Borichevska, global economist at JP Morgan.
Industrial consumption accounts for about two-thirds of silver demand, so the pick-up in activity is tightening the market balance – especially as disruptions to mining operations during shutdowns have reduced supply. Mexico, which accounts for about a quarter of the world’s silver production, closed several mines at the height of the shutdowns.
Analyst Outlook: Government Support for Stimulus to Keep Silver in Uptrend
Watch this video in which Capital.com Chief Market Strategist David Jones recaps the latest silver price news and sets up a potential trading position to take advantage of market volatility.
Technical analysis of the price of silver shows that the $30 an ounce level has formed a major psychological barrier that may prove difficult for the market to break through. However, there remains strong and substantial support in the event of a sell-off.
The long-term trendline indicates that price above $22 an ounce is keeping the bullish momentum in place from the March lows. The Relative Strength Index (RSI) was overbought in July, but fell as the market moved off its seven-year high and remains below the 70% mark.
A potential short trade would put a stop-loss above the $30 level, but with the uptrend remaining strong, investors could choose to take a position on silver prices now, wait for a pullback, or go higher. wait for a break above $30 to confirm direction. of the market. If the trend continues, silver could reach the $32-35 per ounce range last seen in 2012 as the next intermediate target.
Commodity strategists at TD Securities in Canada are buyers of gold and silver at current levels, “expecting a secular trend of lower real rates to continue to support precious metals to new highs,” and noting that “even bull markets fluctuate and sink”. TD’s position is a long silver futures contract with an entry at $26.80 per ounce, a price target of $32 per ounce and a stop-loss at $24 per ounce.
“Given the World War-era fiscal and monetary stimulus, the central bank model shift that will incorporate ‘average inflation targets’, as well as unfolding globalization and a shock on the supply side with an increase in bankruptcies, fund managers are increasingly considering tail inflation risk in their capital allocations,” TD analysts said. “The recent relative strength in metals prices valuable during aggressive risk session suggests few long lows [sell-offs] remain, mitigating the risk of a deeper pullback despite the breakout of the pandemic-era trendline.
“Global mining supply is expected to continue its decline this year, accelerated by production stoppages in several major mining countries, mainly in South and Central America. As with gold, a high price could boost recycling volumes this year,” Heraeus analysts said in their September precious metals forecast update in which they expect to see prices of money increase.
“Industrial demand is picking up but investor demand needs to be sustained for this outperformance to continue. With the economic outlook still uncertain, further stimulus by governments or central banks could keep investors interested in silver. The price is expected to trade in a range of $22.5 per ounce and $35 per ounce for the rest of the year. »
ABN AMRO is less bullish and expects the market to consolidate, predicting in its latest silver price analysis that the metal will average $20 an ounce for the remainder of 2020 and rise an average of $21 dollars an ounce in the first half of 2021. prices have caught up with gold prices but are even more vulnerable to profit taking,” analysts at the Dutch bank said.
Whether you think silver prices will go up or down, you can try to take advantage of the commodity’s swings back and forth by trading it via contracts for difference (CFDs) on Capital.com. You can either hold a long position, speculating that the price of silver will go up, or a short position, speculating that the price will go down.
However, note that CFDs are a leveraged product. Consequently, profits, as well as losses, are magnified.
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The difference between trading assets and CFDs
The main difference between trading CFDs and trading assets, such as commodities and stocks, is that you do not own the underlying asset when trading a CFD.
You can always profit if the market moves in your favor or suffer a loss if it moves against you. However, with traditional trading, you enter into a contract to exchange legal ownership of individual stocks or commodities for cash, and you own them until you sell them again.
CFDs are leveraged products, which means that you only have to deposit a percentage of the total value of the CFD transaction to open a position. But with traditional trading, you buy the assets for the full amount. In the UK there is no stamp duty on CFD trading, but there is when you buy shares, for example.
CFDs attract overnight costs to hold trades (unless you are using 1-1 leverage), which makes them more suitable for short-term trading opportunities. Stocks and commodities are more normally bought and held longer. You might also pay a commission or brokerage fee when buying and selling assets directly and you would need a place to store them securely.
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