- Technicals indicate a run toward $21 in first leg and $24 in second leg
- Weakness below $19.40 could trigger drop to $18.45
- Silver an inflection point over potential to China’s COVID-Zero
After a 15% run-up over three weeks that proved to be silver’s best rally since the pandemic, the metal seems to have hit exhaustion, turning in a loss as November enters its first week.
Yet, technicals indicate a possibility for the so-called white metal to resume its upward stretch to breach $21 per lb in its first leg and above $24 in the second—reaching a level not attained since April.
Charts courtesy of SKCharting.com, with data powered by Investing.com
Fundamentally as well, silver seems to be at an inflection point as speculation over when and how much China will drop its guard over COVID holds much promise to its advance, Capital.com said in a recent analysis.
“If the rumors of China lifting or easing up its current COVID-19 restrictions are confirmed, manufacturers are certain to receive quite a boost from silver,” the research agency said.
“This is likely to result in increased silver demand from solar panels, of which China still retains the overwhelming majority,” Capital.com said, noting that China’s share of global solar panel production has risen from about 55% to around 84% in the last 12 years.
Silver is a key element in solar panels, due to its usage in photovoltaic power, which drives some of the leading sources of renewable energy globally. With about 20 grams of silver being used in every solar panel, this continues to be a vital source of demand for the precious metal.
Silver is also used in batteries, photography, dentistry, semiconductors and more, which are also likely to contribute to rising demand as well, if China’s current policies relax somewhat.
However, putting a damper on silver prices somewhat, was Chinese President Xi Jinping’s resolve in doubling down on zero-COVID laws, as part of his third term’s increased emphasis on national security.
Investors are still hopeful that a turning point may be reached eventually in China, with the people at the top taking some note at least of markets’ increased weariness with tight regulations over the virus and public discontent over lockdowns when the rest of the world has moved on with the pandemic.
Investors will also be keeping an eye on the new laws created by the National People’s Congress during the start of Xi’s historic third term, as they will dictate the rate of the Chinese economic recovery, said Piero Cingari, markets specialist at Capital.com. Adding:
“Since recent Chinese factory data has not been so promising, these coming laws are even more vital for China’s industrial and manufacturing sector."
So, where is silver headed technically?
Sunil Kumar Dixit, who prefers to use spot silver as the more accurate indicator of the metal’s forthcoming price, said the metal’s current rebound appears capped between the 200-week Simple Moving Average (SMA) of $20.88 and the 50-week Exponential Moving Average (EMA) of $21.24.
Dixit adds:
“As prices have reached a confluence of important moving averages, some consolidation towards the 5-week EMA of 20.00 and the weekly middle Bollinger Band of $19.40 looks inevitable.”
Dixit, however, says there’s opportunity for a variation in spot silver’s projected moves.
“If buying momentum keeps support intact, we may see silver resuming upward move to retest $21.24 again, above which the rally can extend towards the next leg higher that targets the 100-week SMA of $23.50.”
But silver could also continue moving lower, he cautioned.
“On the flip side, weakness below $19.40 may push prices down to lower support areas of 100-month SMA of $18.45.”
Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold a position in the commodities and securities he writes about.