Why I am watching Silver

January 20, 2014

The Silver market is much like the gold market in a sense. A market where both precious markets are traded heavily on a speculative basis. However, gold, which seems to be a lot more speculative (especially when it comes to inflation fear) does not seem to have the same economic benefits as silver. With silver being used in a large amount of industrial applications, it is much more valuable when it comes to booming economic markets, and we are certainly at the cusp of a booming market.

Over the last year, we saw major movements in the price of silver as it has drifted lower, as speculators dump the precious metal. However, unlike gold, silver does benefit from a growing manufacturing base as it increases demand and raises prices. That’s not to say gold is used in industrial applications, but certainly silver is used a lot more. Globally, we use 320 tons of gold for electronic manufacturing, while using 7,500 tons of silver in comparison. Additionally, there is always a demand for more silver, as only 15% of silver is recovered from high tech goods, so certainly there is very little recycling processes for something so valuable. Either way though, silver looks set to climb out of the heavy lows it has touched on in recent weeks.

In June last year, we saw silver touch 18.38; a low not seen since 2010 before speculating took over and drove prices to insane levels. Just as of 31st of December, we saw silver push as low as 18.65 before pulling back sharply. Since then, we have seen a gradual climb higher for silver as it looks to push up to its current bearish trend line. The next question is, will anything happen? Looking at current market movements, it is hard to tell, but what is certain is that the trend line is always something important to watch. Current RSI movements show that the market is certainly keen to push higher and has just touched on the trend line again! The question is why have we not seen an immediate push lower for the metal, and why is the RSI still pointing to further movements.

While looking closely at the silver market, it certainly feels that a large drop is in the works as the previous two touches led to a push lower in the day after. However, in the last touch of the trend line, the market only pulled back slightly and then kept up buying pressure. What this looks like to me is that certainly, there is enough momentum for a breakout, it’s just a matter of time - and maybe even economic news. Either way, in the next 48 hours, I will be paying attention to the price of silver and its movements and looking to take advantage of the market build up that looks in play. If anything though, pay attention as if you blink, you certainly might just miss this one.

Written by Alex Gurr, Currency Analyst with Blackwell Global.

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