Silver is a unique commodity that has both industrial and monetary uses. It is widely used in electronics, solar panels, jewelry, and photography, among other sectors. Therefore, the demand for silver is influenced by the global economic activity and the outlook for these industries.
On the other hand, silver is also considered a safe-haven asset and a store of value, especially during times of uncertainty and inflation. Therefore, the price of silver is also affected by the movements of other financial markets, such as currencies, bonds, and stocks.
One of the main drivers of the silver price lately has been the US dollar. The greenback has been strengthening against its major rivals, as investors expect the Federal Reserve to start tapering its bond-buying program sooner than later, amid signs of rising inflation and a robust economic recovery in the US.
A stronger US dollar makes silver more expensive for holders of other currencies, and reduces its appeal as an alternative asset. Moreover, higher US bond yields also weigh on the non-yielding metal, as they increase the opportunity cost of holding it.
Another factor that has been weighing on the silver price is the weak industrial demand. The global economy has been hit hard by the coronavirus pandemic, which has disrupted supply chains, reduced consumer spending, and caused lockdowns and restrictions in many countries.
Although some regions have shown signs of recovery, thanks to the vaccine rollouts and fiscal stimulus measures, others are still struggling with new waves of infections and variants. The latest PMI data from the US and Europe showed a slowdown in the manufacturing and services sectors in May, indicating that the recovery is losing momentum.
What are the key levels to watch?
Silver price (XAG/USD) has been trading below the 50-day EMA since early May, indicating a bearish trend. The metal broke below a key support level at $24.50 on Tuesday, which was the 50% Fibonacci retracement level of the rally from March to February.
The next support level is at $22.90, which is the 200-day EMA and the 61.8% Fibonacci retracement level. This area has acted as a strong support zone in the past, and it could attract some buying interest if tested again.
On the upside, silver price needs to break above the 50-day EMA at $25.40 to change the bearish bias. This would open the door for a retest of the $26.20 resistance level, which was the previous low in February and March.
The silver price chart shows that the metal is trading in a descending channel since February, with lower highs and lower lows. The channel resistance is currently at $25.80, while the channel support is at $22.50.
How to trade silver?
Silver can be traded in various ways, such as futures and options contracts, exchange-traded funds (ETFs), physical bullion, or online platforms that allow trading on margin.
One of the advantages of trading silver on margin is that it allows traders to take advantage of both rising and falling prices, by going long or short on the metal. Moreover, trading on margin also allows traders to use leverage, which means that they can control a larger position with a smaller amount of capital.
However, trading on margin also involves higher risks, as it can magnify both profits and losses. Therefore, traders should use proper risk management techniques, such as stop-loss orders and position sizing, to limit their exposure and protect their capital.
Silver price (XAG/USD) has been under pressure due to a stronger US dollar and weak industrial demand. The metal is trading near four-week lows at $23 level but it is also finding some support from technical indicators such as 200-day EMA and 61.8% Fibonacci retracement level.
The key levels to watch are $22.90 and $25.40 on either side of the current range. A break below or above these levels could signal a new direction for silver price in the near term.