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.
Silver has had a legendary run this year, is heavily correlated with Gold. However, that was only in regards to the movement.
Before September, Silver has outperformed Gold year-to-date, and even from its March lows. Year to date, it has returned just under 50%. Meanwhile, Gold has returned 27%. From March, Silver has returned 68%, while Gold only returned 24% from the same period.
However, in September, the equities' market selloff has transferred to both Gold and Silver, hitting Silver incredibly hard. Silver dropped 14% this month, in comparison to Gold, only falling 3.25%. If Gold was a haven turned speculative bull run, Silver was a speculative run on steroids. However, some fundamental factors may show some profit-taking.
Investors who invest in metals and commodities such as Oil, Silver, and Gold tend to put their capital into ETF backed by metals, instead of buying futures or the physical metal, primarily due to low transaction costs. However, investors have started to take money out of these ETF's, especially Silver backed exchange-traded funds – raising worries that the rally in Silver might be over. IShares Silver Trust ETF has seen a 3% decrease in its silver holdings over the past month to 555m ounces.
The initial case bulls were using to justify the silver trade was its use in Solar Panels. The rally came from the ECB and Joe Biden promoting policies pushing on cleaner power, with the ECB apportioning a large portion of their stimulus package to fighting climate change. However, as risk-off prevailed at the start of this month, investors started to question the actual demand for solar panels at this stage.
Furthermore, with its correlation with Gold, weakness in bull factors for Gold is also associated with a weakness in Silver. Gold is historically associated as a hedge against inflation. With the Fed making it their goal to increase inflation by allowing inflation to go above their 2% mandate, investors and traders question whether they are able to stimulate inflation even amidst their unprecedented rate cuts and quantitative easing.
For now, we've seen a selloff in many risk on assets – so these metals may be a part of that. Will we see further setbacks for the two metals?
Anish Lal did an excellent technical analysis on Gold and its future. You can watch it here.