Silver price
Silver price (XAGUSD) has pared back earlier gains after the US dollar index turned positive. The price is trading at $28.25, which is a few points below the day’s high of $28.62. At the same time, the US dollar index has moved from the intraday low of 93.30 to the current high of 93.58.
Silver price has been in an upward trend in the past few months. Its price has jumped by 55% in the past three months and by 60% this year. This upward trend has been influenced by several factors. First, the weaker dollar has contributed to the gains. The dollar index, which measures the strength of the greenback against peer currencies, has fallen by more than 5% in the past three months.
Second, the significant liquidity in the financial market has played a role in the surging silver price. This liquidity has happened because of the coronavirus and the actions of central banks like the Fed and ECB to implement an open-ended quantitative easing.
Third, demand from ETFs has been increasing. Importantly, silver price has been in an upward trend because of gold. As gold has risen, most investors have moved to silver, which tends to be cheaper.
However, a major problem is emerging because of the rising silver prices. In a report by Bloomberg, imports by India, the biggest silver market, could fall by as much as 50% this year. For example, silver jewellery demand may fall by 25% while silverware could drop by 40%. The report said:
“If you look at the market post 2011, for a few years the rural consumers just went away and they did not buy any silver because of higher prices.”
However, demand from investors could help cushion the fall in the physical market. Recent data shows that inflows into silver ETFs has been rising. Also, the recent passed European Union recovery fund deal together with the likelihood of a Biden win could mean more industrial demand.
The monthly chart below shows that silver price has been in in the green in the past five consecutive weeks. The price is above the 50-period and 100-period moving averages and slightly above the 50% Fibonacci retracement level. Therefore, silver’s trend remains bullish as traders look to test the next resistance level at $30.
However, a move below the 61.30% Fibonacci retracement level at $21.60 will invalidate this trend because it will mean that there are still sellers in the market who will be keen to push the price lower.