Silver price edged lower on Wednesday as the US dollar bounced back. In recent months, economic turmoil has offset supply concerns; an aspect that explains the prolonged downtrend.
Fundamentals
In 2021, Metals Focus’ estimated silver supply would be at 997.2 million ounces. The amount would yield a deficit based on the forecast demand of 1,049 million ounces. Indeed, this imbalance is expected to continue into the current year. This is based on the supply and demand estimates of 1,080 million and 1,101 million ounces respectively.
Notably, the supply/demand imbalance was one of the factors that yielded a silver price rally in the initial months of 2022. This aspect, coupled with its heightened demand as a safe haven at the onset of the Russia-Ukraine war, boosted the metal to a one-year high in March.
Granted, the supply/demand deficit continues to grow. Even so, silver price has been on a decline in recent months as economic turmoil offsets supply concerns. Over a span of seven months, the dual status metal has dropped by over 30%. To begin with, high inflation has pushed the Federal Reserve to aggressively tighten its monetary policy.
The latest US CPI data signalled that inflation in the country is yet to peak. As highlighted in the recent Fed meeting minutes, the central bank’s officials approve further interest rate hikes despite the probable economic pains. As has been the case in recent months, an environment of high interest rates is weighing on silver price while boosting the US dollar.
Concerns over the health of the Chinese economy has also been weighing on silver price in recent months. More recently, those concerns have been heightened by the delay in releasing crucial economic data including the GDP. Some analysts view the postponement as a sign that the numbers are not pretty. Seeing that China is the leading consumer of silver and other industrial metals, weak GDP figures may further weigh on its prices.
Silver price prediction
As shown on a daily chart, silver price is trading below the 25 and 50-day EMAs. In the short term, the range between 18.24 and 18.94 will be worth watching, A further rebound of the US dollar may give the bears an opportunity to retest its 6-week low at 17.87. For this bearish thesis to be invalidated, the bulls will need to gather enough momentum to break the resistance at 19.50.
