Silver (XAG) Forecast: Weak Industrial Demand Could Keep Prices Under Pressure

Silver Edges Higher but the Trend Is Still Down

Spot Silver (XAGUSD) is edging higher to start the week as bullish traders look to confirm last week’s closing price reversal bottom at $61.01. What’s interesting about the low was it was just above 50% of the all-time high at $121.67, a natural buying price for Gann traders. Unfortunately, it didn’t get there before the market rebounded. Additional support is the 52-week moving average at $53.46.

Technical Outlook

The new short-term range is $96.43 to $61.01. Its 50% target is $78.72. The intermediate range is $121.67 to $61.01 with the 50% target coming in at $91.34.

That’s about as simple as it gets. As for the trend, if you’re following the weekly swing chart, the trend is down. The chart is showing lower tops and lower bottoms. That puts the market in “sell the rally” mode. Potential opportunities are at $78.72 and $91.34, or somewhere in between depending on how aggressive you are.

If you’re following the 52-week moving average then you’re still reading an uptrend with bullish traders trying to find value, form a support base and play for the next rally. A support base is most important because the height of the market is often determined by the length of the base. But without a support base, a spike down, rally formation is likely to be sold, following a technical bounce.

Industrial Demand Is the Real Story This Week

Fundamentally, Spot Silver starts the week near its lowest level since early December. Weaker gold, rising yields and weak growth expectations for industrial demand are several factors weighing on prices. Rising yields and lower gold prices go hand-in-hand, so I think that lower industrial demand fears could be the key focus this week.

China’s industrial activity is slowing and both Reuters and Bloomberg have been writing about it. I tend to agree, because silver is directly tied to production and electronics. Rising rates and falling gold are already capping gains. On top of that, the real economy demand side is just not delivering.

Safe-Haven Narrative Isn’t Going to Save Silver

Some are also arguing that silver should be attracting safe-haven buying too. But once again, it’s not gold so I don’t think you should be waiting for a wave of safe-haven demand to rescue the market. So let’s just say that the bigger silver traders are focusing on the slowing momentum in manufacturing and uncertainty around global growth. Meanwhile, the small speculator continues to push the safe-haven narrative.

Recently Citi said that silver tends to underperform when growth expectations weaken. Goldman Sachs pointed out that industrial metals like silver are tied closely to uneven global growth. That supports my idea that silver is being treated more like an industrial metal now, rather than a precious metal investment.

Limited Upside Until the Growth Picture Changes

Looking ahead, it doesn’t look like silver is going to see any short-term support from a rate cut. But industrial demand will control the price action. Even if gold stabilizes, I still see limited upside potential in silver over the short-run.

Short-term, the worst case for silver prices will be weak gold, higher yields and weak industrial demand. Later in the year, the case for lower prices will strengthen, if the market starts to price in a Fed rate hike.

More Information in our Economic Calendar.