- Silver was the best-performing metal in 2020.
- The price has remained in a narrow range recently.
- We look at the catalysts for silver and the challenges to its performance.
The silver price has risen for the past four consecutive days as investors react to the change of guard in the United States and the overall weaker US dollar. On Thursday, silver was trading at $25.89, which was slightly above the year-to-date low of $24.
Silver was among the best-performing metals in 2020. After dropping to a decade low of $11, the metal bounced back and reached a multi-year high of almost $30.
This trend happened for several reasons. First, silver is mostly traded in US dollars. Therefore, the two have an inverse relationship because a weaker dollar raises the demand for silver. In 2020, the dollar index tumbled to a multi-year low in response to the Federal Reserve monetary policies.
Second, the silver prices rallied because of the large stimulus packages offered by many countries. In the United States, the Trump administration unveiled trillions of dollars in stimulus. The European countries did the same. In July, they reached a deal to borrow and distribute about 750 billion euros to help support the economy. This is positive for silver because of its industrial use.
Third, silver rallied due to the overall performance of gold. The gold price rose by more than 20% in 2020, pushing it to an all-time high. Therefore, many retail traders who found gold expensive invested in silver instead. Furthermore, with $1,000, you can make more money trading silver than gold.
What next for silver?
Looking ahead, there are several opportunities and risks for silver prices. The biggest risk is that the coronavirus pandemic is not ending as fast as analysts were expecting. For one, while vaccines have been approved, the number of people getting them is lower than expected. For example, the US is averaging about 900k vaccinations per day. That is lower than the expected 2 million.
Worse, the number of coronavirus cases around the world is rising. In China, authorities have imposed restrictions in Hebei province. In Japan, the government has launched an extended state of emergency. In the UK, the government has announced a lockdown that will go on for several weeks. A number of US states have also gone into lockdown.
The impact of all these is that demand for silver will fall. Unlike gold, which is a precious metal with no industrial use, silver is mostly used to produce things.
On the other hand, there are some factors that are supportive of the silver price. For example, in the United States, Biden has launched a $1.9 trillion stimulus package. And he has pledged to do more to support the economy. These measures include more infrastructure spending and a transition to clean energy.
All these measures could lead to more demand for silver at a time when suppliers are struggling to keep up. The clean energy transition is also important since silver is widely used in manufacturing solar panels.
Silver price forecast
The daily chart shows that the silver price has been a bit boring of late. It has remained between the 2020 high of $29.87 and $21.63. As a result, the price is at the same level as the 15-day and 25-day exponential moving averages. Also, the Average True Range (ATR) has continued to decline, sending signs that there is limited volatility.
Therefore, in the near term, the price will likely remain in the current range. However, a break above the resistance at $29.87 will send a signal that bulls have prevailed. Similarly, a drop below $21.63 will mean that bears have prevailed, which will see it continue to fall.