The price of silver is struggling to move away from the $25.00 level as precious metals suffer a similar fate to other risk-on asset classes, meaning that investors are cautious due to the implication and potential economic impacts of the new COVID-19 Delta variant.
With silver prices more or less in limbo, and investors await the FOMC rate decision this week, it may be prudent to look at the current state of the fundamentals of the white metals, as the technical picture is still very uncertainty.
Silver is primarily used in electronics goods, such as mobile phones, tablets, laptops, medical devices, displays for household appliances, industrial devices, and automotive applications, this a downturn in the economy has negative consequences for silver prices.
Of course we also have to look at supply and demand issues, which at the moment show no supply meeting demand, meaning we currently have no shortages in that area. A classic example would be copper, which surged earlier this year due to a supply shortage fears.
According to the Silver Institute, they expect physical demand for the metal to rise by nine% from a year ago, with demand from the electrical and electronics sector leading the way. So while we have no supply shortage, as things stand, and COVID-19 dependant, demand looks good for silver.
Solar panels also account for 10% of silver demand, and with new innovations in solar panel the percentage usage for silver in solar panels is starting to slide. Still, the Biden administrations infrastructure plan will be a be plus for silver prices.
We should also consider that silver is a major component in ammunition. This means that during times of war silver prices tends to skyrocket. More QE, and rising inflation could support higher silver prices, not to mention that silver remains a safe-haven investment.
The ActivTrader Market Sentiment tool showed some 85 percent of trader hold a bullish sentiment bias towards silver. This highlights those traders remain in a stage disbelief as silver prices fall, which is typically not a good sign.
Frankly speaking, the high sentiment levels of bullish towards silver has been major concern to me for sometime, and until we see sentiment dropping things could get much for silver.
Silver short-term Technical Analysis
The short-term technicals for silver show that a breakout from a bearish head and shoulders pattern is still taking place, as the metal trades under the neckline of the pattern, around $25.50.
According to the overall size of the mentioned pattern traders should prepare themselves for a $2.00 point price drop if the pattern is successfully activated to the downside.
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Silver Medium-term Technical Analysis
The daily time frame shows that the price of silver has repeatedly traded under its 200-day moving average, around $26.00. This is a big red flag as bears have failed to rally away from this key metric is a concern.
Silver is also sitting around the bottom of a large triangle shaped pattern. The pattern holds a downside projection of around $4.00, making this a key moment for silver.
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