- Unlike gold that is primarily used as a store of value, silver’s main application is industrial activity.
- The Dow Jones Industrial Average (DJI) is at an all-time high with the possibility of progress into 2021.
- Technical analysis of SLV indicates that the ETF’s share price may move at an uptrend into 2021.
iShares Silver Trust ETF (SLV) has rallied 47.35% YoY due to the spike in silver futures from $17.938 in January 2020 to $26.285 in December 2020. Since the announcement of the first stimulus checks in April 2020, silver has increased by 87.86%. The successful roll-out of the COVID-19 vaccine is also expected to boost industrial activity that may propel silver’s rally into 2021.
As precious metal and next to gold, silver is also used as a store as a value. Its primary use is, however, in industrial applications (54%), photography (at 15%), jewelry/ silverware (at 26%), and coins (5%). Industrial demand for silver causes the highest volatility in price as opposed to any other factor.
A 5-year analysis of the Dow Jones Industrial Average (DJI) shows that the index is currently at an all-time high of $30,347.85.
The increase in the DJI indicates that industrial activity is advancing in the United States post-pandemic. Silver is different from gold in its application. Most of the gold produced in the world is used for jewelry and a store of value, with only 10-15% left for industrial application. Solar power generation forms a heavy consumer of silver with the US alone, contributing $10 billion to the solar industry. The commodity is used in manufacturing heavy machinery, batteries, photovoltaic RFID chips, and medical equipment. Only 2% of residential areas have solar power in the US, meaning there is growing demand. Other heavy silver consumers for industrial applications include Canada, China, India, Russia, Germany, and South Korea.
Canada has expanded its renewable energy base, with the costs of solar energy declining by 80%. The price of wind power has also reduced by 70%, making these two sources very competitive. This situation means that the North American country will increase silver consumption in building storage capacities for renewable energies and hydro-reservoirs. More investment is required in carbon capture technologies. These systems will increase the consumption of the commodity in both the long and short-term.
SLV rallied 47.10% in 2020 after the stimulus boost with no signs of giving back the gains into 2021. The market bought enough time before the stimulus aid was signed, and the trading session is posing for a positive outcome in the long run. The silver price has also taken a positive turn, hoping that the central bank will continue to keep the zero rates in 2021. The global economy is expected to steady momentum into 2022. Any deviation is expected to increase the prices of assets, including real estate properties.
On December 30, 2020, the SLV ETF share price was trading at $24.76 above the 50-day simple moving average (SMA) price of $22.78. This share price indicates that SLV may sustain an uptrend into 2021. Additionally, the 50-day SMA is above the 100-day SMA that is solid at $19.88. At the moment, we cannot predict that SLV will move in a downtrend based on the fact that the price is not below the 50-day SMA or the 100-day SMA. This technical view indicates a bullish signal for SLV in the long-term.
To analyze SLV’s buying activity, we will consider the relative strength index (RSI) of the stock, based on a 14-day scale. As of December 30, 2020, the 14-day RSI stood at 65.87. Since this index is below 70 and above 30, we can conclude that it has not been overbought. Market sentiment indicates an uptrend in the buying scale, which is at the optimum level. The buying option is stable at this price range.