The price of silver has been rejected by the $20 level over the last two weeks, and Thursday saw a dump by investors.
Precious metals have been on a rally since the start of September, but US inflation has hurt the outlook for metals and stocks.
Daily Silver Chart
XAGUSD now trades above the $19 level but could retreat further towards the $18.50 level. Support at the $18.50 to $19 level could be a buying opportunity in silver.
Credit Suisse had warned of a metal top and had their own suggestions for technical levels to watch:
“Silver has risen back above the crucial 61.8% retracement support of the whole 2020/21 up move at $18.65/15. However, it still maintains a large top below $21.39 and we hence expect further downside from here towards the $15.56 support from a technical analysis perspective. Next resistance is seen at $20.87 and above $21.39 remains needed to negate the top,” they said.
There has been big short interest in the largest silver ETF, the SLV. Retail and institutional demand was betting heavily on lower silver prices in the months ahead, with 12% of shares outstanding being sold short. Those positions could be profitable if stock markets continue lower, but it also sets up a potential short squeeze higher if they are wrong.
Another headwind for silver is that gold is oversold on the gold/silver ratio and that may be a reason for the short position interest.
Silver has struggled since the Federal Reserve began an aggressive interest rate policy in March. Gold has dragged the metals complex lower as it ended the trend of large stimulus measures and reversed into a restrictive monetary policy stance.
For silver, the situation is worse because it is an industrial metal. With recession fears in many developed nations, as well as a slowdown in China, demand for the metal is expected to remain weak. Investors should watch this metal over the coming months as a peak in rates and a revival in global growth could boost the precious metal’s price.
