CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
US English

Silver futures: Will price rebound off recent lows and begin a new bull run?

By  Yoke Wong

Edited by Vanessa Kintu

17:18, 9 September 2022

A pile of silver bars
Silver futures are derivatives with silver as underlying assets – Rashevskyi Viacheslav / Shutterstock

The US silver futures plunged over the past month as the strengthening US dollar (USD) led to an exodus of investment in the precious metal market.

The forward silver contract traded on the New York Mercantile Exchange (NYMEX) fell to $18.179 a troy ounce (oz) on 7 September, down 11.8% compared with a month ago. The October silver futures price was also 24.4% lower than the same time last year. 

Following the continuous hawkish stance of the US Federal Reserve (Fed), which plans to maintain its monetary tightening policy to combat soaring inflation in the US, the market is widely expecting another interest rate hike. The Fed aims a return to 2% inflation, which would bring it down from 8.5% in July.

Fed vice chair Lael Brainard said on 7 September:

“We are in this for as long as it takes to get inflation down. So far, we have expeditiously raised the policy rate to the peak of the previous cycle, and the policy rate will need to rise further. As of this month, the maximum monthly reduction in the balance sheet will be nearly double the level of the previous cycle.”

Earlier on 26 August, Fed Chairman Jerome Powell had warned that rate increases would proceed and higher rates would likely remain. 

Ole Hansen, head of commodity strategy at Danish bank Saxo Markets, commenting on the hikes on 5 September, said: 

“A week that saw financial markets and commodities respond mostly negatively to renewed growth concerns after the Federal Reserve chairman, Jerome Powell, left the market in no doubt that the US and other major central banks would continue to hike rates and keep them high for a prolonged period in order to combat runaway inflation.” 

The US dollar index (DXY) hit a 20-year high over the past week amid anticipation of another 0.75 percentage point interest rate increase in late September. The DXY was last at 109.68 on 7 September at GMT 2039, easing slightly from 110.21 in the previous day.

Silver is an industrial metal and a safe-haven asset and attracts investment when interest rates are low, as returns from other assets such as the US dollar are lower. However, with the USD rising, many investors are reducing their silver positions in favour of the dollars or assets which provide better return in the high interest rate environment.

Amid the high interest rate environment, many investment funds changed their silver futures investing strategy to reduce holdings in the metal. 

In the week ending 30 August, “precious metals saw continued selling with speculators cutting their gold net long by 32% to 20.7k lots while increasing net short positions in silver, platinum and copper,” Hansen added.

Silver price chart

Are you interested to learn more about silver commodities and how macroeconomics affect the market dynamic?

Before investing in silver futures, read this analysis to learn more about the silver futures market and the precious metal’s supply and demand outlook.

What are silver futures?

Silver futures are derivatives with silver as underlying assets; precious metals are traded on exchanges such as the NYMEX and the Shanghai Futures Exchange.

Silver futures are contracts for silver set for forward delivery at a set price on a set date.  Market participants (buyers, sellers, producers) use silver futures to trade and hedge their risks against unfavourable price movements in the market.

The NYMEX futures’ minimum contract unit is 5,000 troy ounces and monthly contracts are listed for three consecutive months. The settlement method for the silver futures is by delivery.

Besides being a safe-haven asset, silver is also a key material in electric vehicles, induction chargers, photovoltaic cells, 5G devices and networks. Hence, silver futures price is supported by the precious metal’s industrial demand.

What is your sentiment on Silver?

27.784
Bullish
or
Bearish
Vote to see Traders sentiment!

Silver futures versus over-the-counter market

In contrast to the futures market, the physical silver benchmark is published by the London Bullion Market Association (LBMA). Physical silver market price is based on over-the-counter (OTC) transactions with contracts settled by physical delivery.

Natural Gas

2.08 Price
-3.990% 1D Chg, %
Long position overnight fee -0.0680%
Short position overnight fee 0.0461%
Overnight fee time 21:00 (UTC)
Spread 0.0050

Oil - Brent

81.49 Price
+0.920% 1D Chg, %
Long position overnight fee 0.0200%
Short position overnight fee -0.0419%
Overnight fee time 21:00 (UTC)
Spread 0.032

Gold

2,356.66 Price
-1.650% 1D Chg, %
Long position overnight fee -0.0195%
Short position overnight fee 0.0112%
Overnight fee time 21:00 (UTC)
Spread 0.30

Oil - Crude

78.12 Price
+0.960% 1D Chg, %
Long position overnight fee 0.0327%
Short position overnight fee -0.0546%
Overnight fee time 21:00 (UTC)
Spread 0.030

London is the world’s biggest physical precious metals trading hub, and the city’s holding of silver is an indication of the OTC market condition.

According to LBMA’s vault data, the physical holding of silver fell to 28,506 tonnes (valued at $16.4 billion) at the end of August, the lowest volume since the data reporting started in July 2016.

Silver futures historical performance

 

The NYMEX silver futures price started 2022 at $22.810 a troy ounce and climbed over the first quarter to peak at $26.895 on 8 March, the highest price since June 2021. The contract began falling in subsequent months as interest rates hike pressured the market.

Numerous economies, including the US, have been tightening their monetary policies this year. They have raised interest rates and slowed asset purchases to counter the effect of rising inflation. 

On 4 May, the Fed raised interest rate by half a percentage point on 4 May, after its first hike in more than three years on 16 March, when the rate was lifted by 0.25%. 

Amid the higher interest rate environment and a stronger US dollar, the silver futures price fell to a two-year low at $17.596/oz on 1 September. Although prices have rebounded above $18/oz and the NYMEX October contract last settled at $18.179/oz on 7 September, it remained around a two-year low.

As a result of the uncertainty caused by the Covid-19 pandemic and its related economic impact, safe-haven assets such as gold and silver’s value were boosted by increased investment inflow. Silver hit an eight-year high at nearly $30/oz in March 2021 but fell shortly after.

Silver supply and demand in 2022

Supply and demand of silver is expected to grow in 2022, according to the World Silver Survey 2022 by The Silver Institute and precious metal consultancy Metal Focus.

Silver supply is forecast to increase to 1.03 billion ounces in 2022, up 3% from the previous year. Industrial demand for silver accounts for more than half of the total global consumption, and demand is expected to rise by 5% year-on-year (YOY) to 1.1 billion ounces and the overall market balance is estimated to be in 71.5 million ounces deficit.

In its silver survey 2022, Metal Focus forecast the deficit could persist beyond this year. 

Silver futures price forecast

As a result of the forecast silver deficit in the market in 2022 and beyond, Metal Focus projects the average silver price at $23.90 a troy ounce in 2022.

Trading Economics’ silver price forecast by the end of September is expected at $17.66/oz, and $16.65 for the next 12 months. 

According to the World Bank Commodity Market outlook in April, the organisation projects the average silver price at $24.20/oz in 2022, falling to $22.50/oz in 2023 and $21.00/oz in 2024.

Note that analysts’ predictions can be wrong and have been inaccurate in the past. Always do your own research before making any investment decisions. And never invest more money than you can afford to lose.

FAQs

Is silver predicted to go up or down?

Analysts such as Metal Focus have predicted the average silver prices to rise to $23.90 a troy ounce (oz) this year. However, Trading Economics projected prices could fall to $17.66/oz by the end of September and even further in the next 12 months.

Keep in mind that analysts’ forecasts can be wrong and shouldn’t be used as a substitute for doing your own research. And never invest what you cannot afford to lose.

Is silver a good investment?

The dual purpose of silver as a safe-haven asset and industrial metal is a supporting factor. However, whether it is a good investment for you or not depends on your investing goals, portfolio composition and risk profile. You should do your own research and never invest what you cannot afford to lose.

What causes silver prices to rise?

As a safe-haven asset, silver prices tend to move in tandem with gold in response to macroeconomic factors. A rise in interest rates and the value of the US dollar weighs on the silver price, while higher inflation, lower interest rates and a weaker dollar provide support.

Markets in this article

GBP/USD
GBP/USD
1.28557 USD
-0.00519 -0.400%
DXY
US Dollar Index
103.989 USD
0.034 +0.030%
Silver
Silver
27.784 USD
-1.102 -3.820%

Related topics

Rate this article

Related reading

The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
Capital Com is an execution-only service provider. The material provided in this article is for information purposes only and should not be understood as investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents and has not been prepared in accordance with the legal requirements designed to promote investment research independence. While the information in this communication, or on which this communication is based, has been obtained from sources that Capital.com believes to be reliable and accurate, it has not undergone independent verification. No representation or warranty, whether expressed or implied, is made as to the accuracy or completeness of any information obtained from third parties. If you rely on the information on this page, then you do so entirely at your own risk.

Still looking for a broker you can trust?

Join the 630,000+ traders worldwide that chose to trade with Capital.com

1. Create & verify your account 2. Make your first deposit 3. You’re all set. Start trading