Silver got no love last week, suffering its worst week in thirteen weeks, and raking up a fourth straight month of losses. After losing US $1.35/t.oz between September 13 and September 18, the metal closed on Friday at US $22.38/t.oz. Before last week, Silver had not traded sub-US $22.50/t.oz for the entire 2021. One would have to rewind their charts to November 2020 to find Silver trading below US $22.50/t.oz.
The cause of Silver’s unpopularity might be the signs indicating that the US economy is in decent shape, regardless of Delta variant fears. For one, Retails Sales in the US pleasantly surprised last week, rising 0.7% vs an expected decline of 0.8%. With positive signs radiating from US economic reports, the seriousness of talk concerning a Fed-taper heightens, and with that, a stronger USD, and less demand for metal hedging.
We might be in uncharted territory here. At least according to a technical perspective and recent history. Silver has successfully defended the US $22.50/t.oz price level multiple times over the past twelve months. To find a closing price below this threshold, trek to July 2020, when Silver closed at US $19.40 as it ascended for eight weeks straight, to seven-year highs, topping out right before US $30.00/t.oz.
Now that the closing spell has been broken, a new era of prices may be on the way for Silver. Moving forward, don’t be surprised by a new range for Silver between US $20.00/t.oz and US $22.50/t.oz leading up to an announcement from the Fed concerning a definite taper timeline. It is possible that the FOMC meeting, scheduled for this coming Thursday, followed by Fed Chair Powell’s speech on Friday, will be the events responsible for the metal’s next significant move.
Palladium is currently trading at USD 1,974/t.oz, a 13-month low for the soft silver-white mineral. In August 2020, Palladium was trading at such a price before it shot up within a hair’s width of USD 3,000/t.oz.
The metal’s current price is sitting snugly between two weak touchstone levels. Over the coming trading week, we could see Palladium claw itself back up to USD 2,200/t.oz, rejecting prices as low as USD 2,000/t.oz but remain suppressed from current levels or break lower into a pocket between USD 2,000/t.oz and USD 1,760/t.oz.
Which of these three is most likely? Evidence suggests it could be the third scenario due to global supply constraints weakening demand for Palladium.
In the short term, it seems likely. Palladium’s principal use is in catalytic converters of automobiles. Car manufacturers are experiencing supply chain bottlenecks (chiefly related to silicon chips), severely hampering their ability to deliver a typical number of new cars. Naturally, the need for catalytic converters has declined hand-in-hand with the decline seen in production capacity.
The bottlenecks are expected to get worse before they get better. This is one short-term factor working in opposition to palladium prices.
According to Intel (NASDAQ: INTC) CEO Pat Gelsinger, it might be two years before silicon chip shortages are overcome. Likewise, BMW’s (ETR: BMW) CEO, Oliver Zipse, sees chips being in short supply for at least the next 6-12 months.
85% of Palladium that is mined ends up in catalytic converters. As such, the mineral is heavily dependent on the automobile industry for its pricing. It might not be until the point in time that car production is ramped up, that the price of Palladium will find higher and more definitive levels of support. Palladium’s supply-demand ratio has been in deficit for the past decade, so we might expect a positive medium-term outlook for the mineral.
While BlackBull Markets does not offer the option to trade Palladium, we do offer a cache of other commodities, including the always popular gold. For this week’s technical analysis of gold, Anish Lal breaks down gold's positive momentum on the hourly chart.
In 2020, Silver had a legendary rise from its low during the peak of the Coronavirus lockdowns in March – up over 140%. Analysts (including me) attempted to justify its price and separate its strong correlation with Gold by arguing that Biden's climate change policies will boost Solar Panels' use, which extensively uses Silver. This may be a catalyst in the longer term.
However, in the short to medium term, Silver is unlikely to be affected by this catalyst. With a new US President in the seat, alongside a decrease in Gold's price, what are we going to see in the price of Silver?
From September till the present, Silver has been fluctuating between $22.40 and $27.30 reliably. We can see clean candles to the downside from the $27 mark, predicting strong moves to the downside if it rejects that strong psychological level.
The Gold /Silver Ratio reached an all-time earlier this year when Silver's price collapsed to $11.94 when investors flew to equities out of fear of market fluctuations. The Gold/Silver Ratio is a ratio of how much silver ounces must buy a silver ounce of Gold.
With Gold quoted to rise in the medium due to inflation concerns, some analysts predict a Bull Run in 2021 for Silver. Philip Newman, a consultant at Metal Focus, stated that "We are going to see new record highs for Gold and Palladium [in 2021], but silver will see the chunkies gains,"