Silver price has eased in Monday trade in reaction to the weak Chinese industrial data after recording gains for four sessions in a row. Even with the weakening of the US dollar, recession woes continue to weigh on the industrial metal.
Chinese factory output
The Middle Kingdom’s factory output unexpectedly contracted in July; indicating that the recovery of the world’s second largest economy may be slower than expected. The manufacturing PMI came in at 49.0 compared to the prior month’s 50.2 and analysts’ estimate of 50.4. A figure below 50 usually signals shrinking of the economy.
Granted, the Caixin manufacturing PMI is still in the expansion territory at 50.4. In the previous month, it was at 51.7. However, a decline in the factory output has heightened concerns over the country’s demand for silver and other industrial metals. Notably, China is the leading consumer of this class of commodities. The crisis in the country’s real estate sector has also impacted the metal’s industrial demand.
In early March, silver price rose to its highest level since June 2021 following the Russian invasion on Ukraine. Since then, it has dropped by over 25% as high inflation and an environment of high interest rates continue to weigh on the broader class of commodities.
In addition to the slowed global economic growth resulting from the heightened inflationary pressures, the Fed’s hawkish stance has been weighing on industrial metals as the US dollar strengthens. However, in recent sessions, silver price has found support from the weakening of the greenback. Even with the easing of the US dollar, recession woes will likely continue to curb the metal’s gains.
Silver price technical analysis
On a daily chart, silver price remains above the 25-day exponential moving average even after easing in Monday’s session. However, it is finding resistance along the 50-day EMA for the second session in a row.
As the week unfolds, I expect the metal to remain subject to curbed gains. In particular, the range between the psychologically crucial level of 20.00 and 20.45 will be worth watching. Further gains may place the resistance level at 20.71. On the flip side, a pullback may still place the 25-day EMA at 19.59 as a steady support zone.