What’s next for the price of Silver?

Silver prices have fallen back to pre-pandemic levels, erasing the entire 2020 bill run- but is there a chance of a rebound?
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To hedge or to profit?

Silver straddles the line between precious metal and commodity, as its chemical properties make it a critical component in many industries.

One that is particularly relevant now is the switch away from fossil fuels. About 6% of the cost of a solar panel comes from silver, and around 8% of the world's silver production goes into solar panels. Silver also has promising potential in the battery industry, which is critical to shift toward electric mobility.

With the price of fuel skyrocketing, promoting interest in renewables and solar projects, it might be a bit of a surprise that the price of silver has continued to fall. The bulk of silver buying and trading is still a hedge against inflation. While central banks weren't taking action, inflation was expected to increase, which prompted more demand for hedges such as gold and silver. Now that phenomenon has gone into reverse.

Turning to the future

The Fed is aggressively hiking rates, which is increasing dollar strength. In comparison, this puts downward pressure on silver. In addition, if there is a recession coming, then demand for silver might drop in the future. Ironically, the high price of fossil fuels is forcing many firms to slow production or outright shut down, which includes components necessary to manufacture solar panels and batteries. Unless the price of energy comes down, the industrial demand for silver is also likely to remain diminished.

These two factors are conspiring for the moment to keep the price of silver under pressure. Silver is often mined in conjunction with copper. With the Chinese economy faltering, the price of copper has also been under pressure, reducing the drive for increasing the production of silver.

So while the price might be under pressure in the near term due to economic uncertainty, when that resolves, silver could be poised for a substantial rebound.

Silver below golden pocket

The price of silver has fallen below the golden pocket of the $11.60-30.0 leg, with $18.8 level now resistance. Breaking past it would clear the path towards the 20-week average of $20.4 if $19.80 gives in. Above there the 200-week average and the 38.2% Fibonacci at $22.50 and $23.20 are next. Otherwise, a drop below $17.50, would expose $15.0, and perhaps the 2020 low of $11.60.

In the short-term, a bullish divergence could transpire into an upward move as the stochastic remains oversold, but the fast line must cross above the slow line. Until this happens, the price might consolidate between $17.50 and $19.80.

Key takeaways

Silver becomes more important in the production of solar panels and batteries as we shift away from fossil fuels.

The price of silver has continued to fall despite increasing interest in renewables and solar projects as hedging against inflation is taking a beating amidst Fed’s aggressive hiking path.

Demand for silver may slacken further in the future due to slower production and a possible recession.

China’s economic faltering has reduced the amount of silver being mined as well. When that recovers, silver will be poised for a rebound.