It’s two sevens in the negative for silver, which is finishing April down 7% for its biggest loss in seven months.
After soaring to a nine-month high of $27.50 an ounce on Mar. 8 as it joined gold and most other commodities rallying in the aftermath of Russia’s invasion of Ukraine, silver has now fallen on relatively hard times.
In Friday’s Asian trading, silver’s front-month futures on New York’s COMEX were hovering at under $24 an ounce, after opening the year at $22.84.
While that left the price just slightly in the positive for the year, the 7% drop for all of April would be silver’s biggest for a month since the 8% slump in September 2021.
Compared with gold, silver was in a much worse spot. Gold was up over 4% on the year and looked poised to finish April down just over 2%.
Even so, in Asian trading on Friday, COMEX gold futures hovered at just $1,910, sharply off the Russian-invasion high of almost $2,079 on Mar. 8.
Silver at times appears like the “forgotten stepchild” of the precious metals bucket—rarely eliciting the kind of excitement found in gold, which a fortnight ago reprised $2,000 highs as an inflation hedge and a safe-haven buy.
The problem with silver though is while it’s officially clumped into the precious metals bucket along with gold, palladium and platinum, it really is more of an industrial metal in terms of its applications and demand.
More than 50% of silver’s demand originates from industrial use. As a malleable metal, it is just as good as gold for jewelry making. It is also a proven conductor of electricity, and is used extensively in the manufacture of electronics components.
Industrial demand for silver has been a little slow to take off this year, as sectors of the US and global economy continued to suffer from the supply chain disruptions caused by the two-year-long coronavirus pandemic.
Also, prices of silver are typically “joined at the hip” with gold, rising and falling in tandem with the yellow metal.
Silver trades at a fraction of the price of gold and is often called the “poor man’s gold”—so much so there’s even a gold-silver ratio that serves as a benchmark for the valuation of silver.
Seldom does silver break out or plunge on its own without gold rallying or falling as a catalyst. But gold can—and has—traded independently of silver, outshining silver in most sessions.
Last year was a stellar one for silver demand. The Silver Institute's latest World Silver Survey reported that the global silver market realized growth in every demand category in 2021, marking the first tandem growth for all key sectors of the metal since 1997. Surpassing pre-pandemic volumes, total global silver demand achieved its highest level since 2015, surging 19% to 1.05 billion ounces.
"Physical silver investment (sales of silver coins and bars) leaped by 36% to 278.7 million ounces, its highest level since 2015, as retail investors in North America and Europe, motivated by safe-haven and inflationary concerns, took advantage of periodically lower silver prices to purchase coins and bars," the survey said.
But supply failed to keep up with last year’s surge in demand, with a deficit of 51.8 million ounces noted—the biggest for a year since 2010—the survey noted.
“This year, industrial demand for silver is expected to rise to a new record, driven largely by growth in solar and other electrical applications,” Stefan Gleason, president at bullion dealer Money Metals Exchange, said in a post on Monday.
But he also noted that “investment demand is more of a wild card” though the returns of 2022 could still be substantial for silver and other precious metals due to the threats of war and inflation, along with possible further underperformance of financial markets.
So, where is silver heading from here?
Prices could head down even more to $21 levels by next week, and ultimately test the low $20s, said Sunil Kumar Dixit, technical strategist at skcharting.com, who uses spot silver as his gauge.
Spot silver dropped to $22.90 to test the $22 level, and the eight-day losing streak only paused due to oversold Stochastic and Relative Strength Indicator readings on the daily chart, said Dixit.
He noted that the metal continues to trade bearishly below major key Simple Moving Averages that include the 100-day SMA of $23.93, the 200-day SMA of $23.78 and the 50-Day Exponential Moving Average of $24.50.
“While the short-term bounce back to $23.80 and $24.50 is not ruled out, we expect prices to correct lower, to $23.15 and further below to the $22.50 - $22 levels and possibly $21.50 during the coming week,” said Dixit.
He added:
“Major support areas would be $21.30 and $20.15 while major resistance areas would be $24.50 and $26.96.”
Gleason, the bullion dealer, concurred with that, saying silver’s “200-day moving average acted as resistance multiple times until it was broken decisively in March.” Adding:
“It may now serve as support in the $24 range.”
“Of course, bulls would like to see long-term moving averages turn up. For now, they are reflecting choppy price action—something that will eventually give way to a directional trend,” Gleason added.
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.