Silver prices continued to rise over the past month to hit a fresh seven-week high of $24.38 an ounce on 25 October, gaining support from rising industrial metal prices, inflation and a softer US dollar.
Silver is both an industrial metal and a safe-haven asset, so prices could be driven by base metal market movement and inflationary concern.
Amid rising inflation, the US Dollar Index (DXY) has weakened over the past two weeks. The index was at 93.94 on 26 October, down 0.6% from 94.52 two weeks earlier.
In this article, we take a look at the market’s recent developments and trends, as well as latest silver price news and forecasts.
Silver market overview
The silver market has been volatile this year, with the precious metal losing more than 10% of its value so far in 2021. Uncertainty around potential interest rate hikes and monetary tightening by the US Federal Reserve (Fed) has stoked risk-averse market sentiment, leading to increased investment in silver in the first half of this year. The market has responded to unpredictable Covid-19 outbreaks, which have hindered economic recovery, with fast reactions in Q3, causing sharp price movements as seen in August and September.
According to the silver price chart, the metal started the year at $27.27 an ounce and hit an eight-year high at nearly $30 before falling to $24 an ounce on 31 March, London Bullion Market Association (LBMA) data showed. After silver prices rallied again in the second quarter and the metal peaked at $28.4 on 18 May, it then lost momentum and started falling again.
The flash crash in August saw silver prices briefly dip below $24 an ounce before recovering. However, an outflow of investment pushed prices lower again in September, sending the precious metal to a 14-month low at $21.53 an ounce on 30 September.
According to the silver trend analysis from Capital.com’s chief market strategists David Jones, the market has been trading sideways for most of the year because of a lack of investment interest, as the stock market and US dollar have recovered strongly.
Growing silver demand in electronic devices
According to London-based research consultancy CRU, demand for silver is growing – it’s a key material in electric vehicles, induction chargers, photovoltaic cells, 5G devices and networks. The company wrote on 23 September:
The use of silver in electronics and electrical applications (excluding photovoltaics) is forecast to rise from 224 million ounces to 246 million ounces in 2025, according to the research.
Rising silver physical holdings in London Vaults
Physical holding of silver held in London vaults rose to 36,486 tonnes at the end of September, surpassing the record-high volume of 36,706 tonnes in June, according to data from the LBMA.
London is the world’s biggest physical precious metals trading hub, and the higher holding could indicate a robust over-the-counter silver market.
Rising inflation and slower economic growth
The US inflation rate continued to accelerate in September, with the Consumer Price Index (CPI) for that month up 5.4% from a year ago, one percentage point higher for August, data from the US Bureau of Labor Statistics showed. The index measures what consumers pay for goods and services in the US, including clothes, groceries, restaurant meals, recreational activities and vehicles. The rate of inflation has been rising every month since the beginning of this year and is at a 13-year high.
The resurgence of Covid-19 outbreaks throughout the world continued to hinder economic recovery and reduced gross domestic output (GDP) in affected regions. As a result, the International Monetary Fund (IMF) has revised downward its latest growth forecast from its previous projection.
According to the IMF’s World Economic Outlook growth report published on 12 October, the growth forecast for 2021 is cut by 0.1 percentage point to 5.9%, and global economic growth is expected at 4.9% in 2022.
In the report, the IMF wrote:
The growing concern on inflation has prompted an inflow of investments in silver over the past week, with strong speculative demand lifting the net long positions of the precious metal, said Ole Hansen, head of commodity strategy at Danish bank Saxo Markets.
In the note published on 25 October, Hansen wrote: “Silver’s 6.1% rally helped support a tripling of the net long to 14,600 lots.”
So, will the silver value rise or fall over the next few months?
Silver price forecast for the following months: where to next for the market?
According to David Jones’ latest silver rate analysis, it’s unclear whether the precious metal has broken free of its downtrend.
Check out Capital.com’s latest video on silver technical analysis.
“If it pushes much above $25 then I do think finally this downtrend of silver is reversing,” Capital.com’s chief market strategist added.
Based on the silver technical analysis chart, Jones listed the below key support and resistance levels for the market:
Market analysts have a wide range of forecasts, ranging between an average silver price of $25.90 to $32 an ounce in 2021-2022.
In the meantime, according to Trading Economics’s silver spot price forecast, the metal is predicted to trade at $24.90 an ounce by the end of fourth quarter of 2021 and potentially rise to $26.77 in 12-months time.
When considering analyst commentary and silver price projections, it’s important to keep in mind that they can and do get their estimates wrong. You should always do your own research, taking care to consider all relevant market conditions. Keep in mind that past performance is not an indicator of future returns.
In addition to macroeconomic factors such as changes in interest rates and inflation, among many others, silver prices are also impacted by the metal’s supply and demand. As silver is also an industrial metal, the market could be influenced by base metal market movements as the industrial application of silver is closely linked to base metal demand.
The difference between trading assets and contracts for difference (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 using 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 will 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 need to pay a broker’s commission or fees when buying and selling assets directly, and you’d need somewhere to store them safely.