Precious metals, particularly silver futures and ETFs, are falling Monday, as the futures traders may be reigniting the downtrend to begin the trading week, amid a dearth of headline news to help move markets.
June gold futures dropped $16.50 to trade at $1,728.30 an ounce, while May Comex silver futures declined $0.570 to $24.75 an ounce. The moves have been tougher on silver which is down 2.25% as of almost 3 PM EST.
Technical analysts are suggesting that silver remains in its nearly 3-month downtrend, which could be reasserting itself based on the action from last Friday and today, where prices broke below recent highs near $25.67 an ounce.
“May silver futures prices are also seeing a corrective pullback from recent gains. The silver bears have the overall near-term technical advantage. Prices are still in a 10-week-old downtrend on the daily bar chart. Silver bulls’ next upside price objective is closing prices above solid technical resistance at $26.00 an ounce. The next downside price objective for the bears is closing prices below solid support at the March low of $23.74. First resistance is seen at $25.00 and then at today’s high of $25.33. Next support is seen at $24.50 and then at $24.00,” wrote Kitco analyst Jim Wyckoff.
Silver ETFs have been falling as well, with the iShares Silver Trust (SLV) down 1.84% Monday.
The downside is also further highlighted by the surplus of available silver, and its association with gold, which some analysts believe could drive a move lower in both silver and gold.
“Considering the high correlation of silver to gold, and our bearish outlook for the yellow metal over the next 12 months, we expect silver together with gold to continue to struggle amid higher real interest-rate expectations in the U.S.,” said Giovanni Staunovo, a strategist at UBS Group AG.
A Temporary Setback?
But while some analysts see the downtrend in the industrial metal continuing, there is also evidence that silver demand could increase in the near future thanks to numerous applications in the solar, technology, and automotive sectors.
Silver is a critical component in solar panels, something that could grow consumption over the longer-term. With gold in a steady and steeper decline since last August, some analysts are now projecting that silver will outperform gold this year, which could be good for silver ETFs as well.
In addition, although silver is still in excess, that surplus is declining, having reached its lowest excess since 2015.
“The outlook for demand growth for silver over the next few years looks very positive, especially across a wide range of industrial applications, including solar, 5G and automotive,” said Philip Klapwijk, managing director of Hong Kong-based consultant Precious Metals Insights Ltd. “That, coupled with ongoing high levels of investment is likely to create the need for more dedicated storage space for silver in bullion and also intermediate forms.”
Gregor Gregersen, founder of Silver Bullion, said he started searching for a bigger warehouse two or three years ago and that decision was vindicated last year when demand for the metal surged during the coronavirus pandemic. “The idea is to make this into a really iconic building,” he said during a tour of the vault that will be known as The Reserve. “There isn’t really a facility built specifically to store large quantities of silver securely.”
For investors looking for upside in silver, the Sprott Physical Silver Trust (PSLV) provides access to silver, while those looking for more downside could look into the ProShares UltraShort Silver (ZSL).
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