Silver price is still below the critical level of $21.00 as the industrial metals market remain under pressure. While it may have found its short-term bottom, the bears will likely remain in control for a while longer.
Chinese demand
At the beginning of the week, the spot price rebounded from the 10-week low of $20.60 hit on Friday to Monday’s intraday high of $21.53. The rebound was founded on the positive Chinese industrial profit figures. This follows the easing of COVID-19 restrictions.
Even with improved sentiment on the Chinese economy, slowed global economic growth and heightened recession fears remain major headwinds for the market. These factors are also impacting other industrial metals, with COMEX copper futures appearing set to record the fourth straight week of losses. In the ensuing sessions, silver and other industrial metals will be reacting to the Chinese manufacturing PMI scheduled for release early on Thursday.
Gold/silver ratio
The downtrend in silver price is also observable through the gold:silver ratio. The figure shows the correlation between the spot prices of gold and silver. Simply put, it shows how much silver – in ounces – are needed to buy an ounce of gold.
On 12th May, the gold/silver ratio hit its highest level since July 2020 at 88.41. On the next day, silver price extended its losses to a two-year low of 20.46. As at the time of writing, the ratio was at 87.41. For as long as the ratio remains above 84, which has been a steady support zone since early May, silver price will likely remain under pressure.
Silver price technical analysis
As shown on a daily chart, silver price is still trading below the 25 and 50-day exponential moving averages. Based on these technical indicators, coupled with the fundamentals, the precious metal will likely remain under pressure despite the probable rebound.
In early Wednesday trade, it was hovering below the critical level of 21.00 after dropping past it in the previous session. In the near term, the range between 20.78 and 21.06 will be worth watching.
Even if the bulls gather enough momentum to push silver price past that range, I expect it to continue facing resistance at around 21.54, which is along the 25-day EMA. While am of the opinion that it has found its short-term bottom, a decline past the current support zone of 20.78 will give the bears an opportunity to retest the lowest level year-to-date which was hit in mid-May at 20.46.
