Silver price erased some of the previous week’s gains on Monday as the market reacts to weak Chinese data. Gains recorded by the US dollar at the start of the week are also weighing on the commodity, whose price movements are founded on its dual status as a precious and industrial metal.
What’s driving the market?
Data released earlier on Monday showed that Chinese industrial production rose by 3.8% in July compared to a similar period in the past year. Notably, it rose at a lower pace compared to the prior month’s 3.9% an d forecast 4.6%. Besides, retail sales in the second-largest economy rose by 2.7% YoY; a decline from the prior month’s 3.1%. It also missed the economists’ estimate of 5.0%.
The released Chinese data are a sign that that the country’s domestic demand remains weak. Seeing that the Middle Kingdom is the leading consumer of silver and other industrial metals, investors are now keen on whether the approved rate cuts will boost silver price in coming weeks. The People’s Bank of China reduced its medium-term lending rates by 10 basis points. Notably, this is the first rate cut since January. This is in an effort to improve economic growth as the property market crisis and COVID-19 lockdowns weigh on the economy.
Silver price is also under pressure from the rising US dollar. As at the time of writing, the dollar index was at $106.18; up by 0.48%. As is the case with other dollar-priced commodities, a surge in the value of the greenback makes silver more expensive for buyers holding other currencies.
Silver price prediction
Silver price edged lower in Monday’s session even as it holds steady above the psychologically crucial level of 20.00. As seen on a daily chart, it is trading above the 25 and 50-day exponential moving averages. While these technical indicators point to further gains, I am cautiously bullish on its movements in the short term.
In particular, the range between Monday’s intraday high of 20.89 and the 50-day EMA at 20.34 is worth watching. A pullback past the horizontal channel’s lower border will have the bulls defend the crucial support zone of 20.00, which is along the 25-day EMA.
Even if the bulls are able to break the resistance at the range’s upper border, the psychological level of 21.00 will likely remain a steady resistance zone in the short term. A move above that level will invalidate this thesis.