Silver analysis: precious metals gearing up for next leg higher

The US dollar continues to weaken, particularly against safe-haven currencies like the Japanese yen, while high-beta currencies have yet to see a sharp movement. This ongoing softness in the dollar creates an opportunity for precious metals to rise. Gold remains a spitting distance away from reaching its previous record high made just a couple of weeks ago. Silver, on the other hand, has been held back because of fears about China’s economy, undermining prices of other base metals like copper and iron ore, as well as hurting crude oil. Still, our silver analysis suggests that if stock markets were to stabilise, the grey metal could benefit more profoundly from the declining US dollar. The longer-term silver outlook remains as bullish as ever.

Short-term silver analysis: Weakening US labour data undermines dollar

This week, US labour market data has been underwhelming. First, JOLTS job openings disappointed on Tuesday with a print of 7.67M vs. 8.09M eyed. This was followed by today’s ADP private sector payrolls, which rose by just 99K—far below the expected 144K. The previous figure was also revised lower. Meanwhile, the employment component of the ISM services PMI pointed to a slower growth, printing 50.2 – just about holding in the expansion territory – versus 51.1 last month.  

For the dollar to continue falling, more negative economic data will be crucial. Friday's upcoming payroll report will be a key moment.

Still, any short-term dollar gains may be limited, given that the Fed is signalling rate cuts. This dovish stance caps the dollar's upside, making silver attractive for some. Our silver analysis is therefore tilted towards the bullish side of things as we think weak US data should keep downward pressure on the dollar, boosting metal’s prices. If the trend continues, silver is likely to benefit from both the weakening dollar and growing demand for safe-haven assets.

Silver analysis: China concerns vs. demand amid drive towards cleaner energy

Market’s perception about demand in key economic regions like China is not very optimistic right now, as indicated by falling prices of crude oil, copper and iron ore, among other things. Along with China, one of the world’s largest gold consumer nations, major European economies have also struggled for economic growth, while growth in the US has slowed down markedly. This may hurt retail jewellery demand for silver.

But investment demand is likely to remain elevated due to haven flows in precious metals, and expectations of strong demand for silver in the future amid the drive towards cleaner energy in China and across the world. Its unique characteristics render it essential in industries that demand the utmost reliability, precision, and safety. As the world shifts towards greener energy, silver's significance is only likely to grow.

Technical analysis: Silver poised for bullish breakout

Source: TradingView.com

Silver’s highs lows on the daily time frame suggests the precious metal remains on course to potentially break more decisively above the key $30 handle this time around, particularly with gold price near an all-time high. If and when it does break the $30 barrier, it will have taken out the bearish trend line that has been in place since May. Ahead of $30 handle, it still needs to get back above $29.00, which has been a pivotal level in the last couple of weeks. Meanwhile, short-term support comes in at $28.36, followed by $28.00.

So, our silver analysis is bullish but due to the reasons stated above, a clean break above the bearish trend line is now needed for confirmation that the bullish trend has resumed. 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R