- Silver down 8% over four weeks, at an inflection point now amid China slowdown
- China is world’s largest solar panel maker, with 430GW or more of solar capacity
- China slowdown, without doubt, will slow global industrial progress
One of the world’s most valuable industrial metals, silver, could lose more of its luster as the economy it heavily relies on slows by the day.
The white metal, key to renewable energy from its extensive use in solar panels, has lost 8% of its value in four weeks, trading at a crossroads now, with a technical rebound likely after the triggering of key support levels on its way down.
But it could also enter a new period of fundamentally-driven bearishness after trade data on Tuesday showed China’s exports tumbling at its fastest pace in 3-½ years, adding to concerns about the world’s No. 2 economy.
Charts by SKCharting.com, with data powered by Investing.com
A China slowdown will slow global industrial progress as many of the world’s jobs and production depend on the Chinese economy due to its vast market and factory floors.
In Monday’s session, silver for September delivery on New York’s Comex fell to a one-month low of $23.12 an ounce, extending for a fourth week in a row a decline that began when the metal traded above $25.
The spot price of silver, more closely watched than futures by some traders, settled on Monday at $23.15 per ounce — down 2% on the day and 7% off over the past four weeks.
Those moves in silver came before data on Tuesday that showed China’s exports fell by 14.5% last month from a year earlier to $281.76 billion, compared with a 12.4% slump in June.
The drop in China’s July exports was way beyond the 4.8% fall projected by Wind, a leading provider of financial information services in Beijing.
Aside from exports, imports fell 12.4% in July from a year earlier to $201.16 billion, versus a fall of 6.8% in June and against Wind’s forecast drop of 11.4%.
Silver and the Chinese Economy
The International Monetary Fund originally forecasted that China would be the top contributor to global growth over the next five years, with a share expected to represent 22.6% of total world growth — double that of the United States.
Prices of metals from iron ore to copper fell this year as demand in the world’s biggest market didn’t pick up as strongly as traders had expected.
The slump is hitting exporters of high-tech goods especially, with shipments from South Korea and Taiwan dropping by double digits each month in the first half of the year.
After years of COVID restraints, Chinese travelers have yet to resume traveling en masse abroad, as their income and job confidence remain weak, hurting tourism-dependent countries.
With the risk of further interest rate hikes tipping the US into recession, the prospect has grown of the world’s two economic powerhouses slumping simultaneously compounding the pain for everyone.
In the case of solar power, China has 430 gigawatts or more of solar capacity, making it the largest solar energy producer.
Silver is a key element in solar panels due to its usage in photovoltaic power, which drives some of the leading renewable energy sources globally.
With about 20 grams of silver being used in every solar panel, this remains a vital source of demand for the metal.
Silver: Technical Outlook
Silver attained record highs when futures hit $49.56 an ounce in April 2011. Current prices are nearly $25 below that peak.
Four weeks of back-to-back declines in spot silver seem to be leaning on and taking support at the 50-week Exponential Moving Average, or EMA, of $23.08, said Sunil Kumar Dixit, chief technical strategist at SKCharting.com.
Concurrently, the spot price’s weekly Relative Strength Index, or RSI, at 48 for Comex silver’s September futures contract lands below neutrality at 50 while weekly Stochastics at 27/40 align with prevailing negativity, said Dixit.
“If silver finds buyers above the $23.08 zone, the rebound is less likely to be straight and strong, as there's a cluster of resistance on the way up which needs to be cleared for a resumption of the uptrend,” added Dixit.
But he said momentum accumulation has to show strength above the 200-day Simple Moving Average, or SMA, of $23.20, followed by a reclaiming of the 5-day EMA dynamically positioned at $23.45.
The main challenge, Dixit said, would be the 50-day EMA of $23.86 and the 100-day SMA of $24.05.
“If bulls fail to defend $23.08 support, look for a further drop to the 100-week SMA of $22.56 and the 200 week-SMA of $22.35,” he added.
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Disclaimer: The aim of this article is purely to inform and does not in any way represent an inducement or recommendation to buy or sell any commodity or its related securities. The author Barani Krishnan does not hold a position in the commodities and securities he writes about. He typically uses a range of views outside his own to bring diversity to his market analysis. For neutrality, he sometimes presents contrarian views and market variables.