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What happened with Silver during the Summer – Fundamental and Technical analysis

Published by Karl Martin Karus in category Articles on 03.10.2022
Gold price (XAU-SEK)
24229,50 SEK/oz
  
- 233,70 SEK
Silver price (XAG-SEK)
305,89 SEK/oz
  
- 2,01 SEK

Fundamental Analysis

Hedge funds remain bearish on Silver

According to Kitco, a report showed that money-managed speculative gross long positions in Comex silver futures rose by 736 contracts to 41,545. However, short positions also rose by 1,922 contracts to 42,404.

Silver now has a net short position of 859 contracts. For the sixth week in a row, net bullish positioning has decreased. Since early June 2019, the silver market has been a net negative for the first time.

Analysts suggest that copper needs to stabilize before Silver can find a bottom

According to analysts, the silver market is struggling since sluggish demand for base metals negatively influences its industrial interest.

According to some experts, copper prices must stabilize before Silver can find a bottom. As hedge funds closed their hefty copper short bets, this situation might be on the cards shortly.

Silver correlates with Energy Transition Equities


(Picture 1. Source: Bloomberg and Sprott Asset Management LP. Data as of 4/30/2022.)

Although risk aversion is prevalent in the current climate, it is not the fundamental driver of longer-term silver demand, given its dual character as a precious and industrial metal.

The energy transformation narrative will potentially be a significant driver of silver demand this year and in the future. Both the epidemic and the war in Ukraine have increased investment in energy-transition projects. The current environment’s geopolitical difficulties only bolster that tendency while weakening other aspects of silver demand.

Silver production down in Peru

Peru is the world’s third largest Silver producing country. According to the Ministry of Energy and Mines of Peru, Silver production was down more than 15% compared to July 2021. A drop from 295 207 kg to 249 825 kg.

Technical indicator analysis

Trendlines / Support & Resistance

*Red lines are a downtrend. The heavy red line is the long-term trendline.
*
Green lines are uptrend. The heavy green line is a long-term trendline.
*
Blue lines are short-term support & resistance lines


(Picture 2. Trendlines & Support/Resistance)

  • Similarly to gold, Silver’s highest price in 2022 was recorded at the beginning of March at 9 USD.
  • Since then, the Silver price has been dropping, and there is a clear bearish market.
  • Similar to the gold market, Silver has also developed a descending triangle, which needs to be completed to expect robust price spikes.
  • Silver is trading at just under 20 USD in the middle of September.
  • Silver has a solid resistance area between the 20.8-22 USD range, and to make more prominent bullish movements, it needs to break out from that area. Current market sentiment does not seem like this will happen in the short term.

Moving Averages, and RSI


(Picture 3. – moving averages and RSI)

  • As mentioned before, there is considerable resistance in the silver market in the 20.8-22 USD range, and 250MA confirms that range.
    (reminder: 250MA in a daily graph is a one-year moving average and works as powerful support or resistance. It also gives a good indication of the market situation – when trading under 250MA is considered a bearish market, when trading above 250MA is considered a bullish market.)
  • When the Gold RSI indicator suggests a bearish reversal to bullish sentiment, then the silver market does not indicate that.
  • There is also a divergence in the Silver market, but it indicates a following bearish momentum rather than a potential bullish movement.
  • When bears break the long-term trendline and support area near 17.5 USD, we can expect the silver price to drop even further. Maybe even around 16 USD, if not lower.

The silver market works differently than gold and is much more connected with the industrial and technology sector. Silver is widely used in various productions and is considered primarily industrial metal rather than protecting one’s money from economic uncertainties like gold.

Gold price (XAU-SEK)
24229,50 SEK/oz
  
- 233,70 SEK
Silver price (XAG-SEK)
305,89 SEK/oz
  
- 2,01 SEK

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