The last few weeks have been marked by increases in the price of precious metals, in particular, the price of silver, which reached its highest since 2021, reaching $29.8 per ounce.
The price has already risen by more than 22% in the space of 3 months and demand remains strong. Does the price still have room to rise to its historic highs near $50? To answer this question we have to understand what is triggering this demand, what the supply side is like, geopolitical risk and seasonality. – Learn how to invest in assets like silver
Looking for
Financial institutions have played an important role over the last few years when it comes to the demand for physical gold and silver bars. While gold is attracting the most attention among precious metals as it is trading at all-time highs, silver is also in the spotlight after an impressive rise of over 22% in 3 months. Gold and silver appear to be driven primarily by expectations of more dovish monetary policy from major central banks, however, ETF holdings do not show any increase in demand for gold from institutions. The same cannot be said for silver, with ETFs visibly increasing their physical silver holdings since the beginning of March, this is triggering an aggressive increase in demand.
Geopolitical Risk
Concerns in the Middle East continue to be a driver for the prices of precious metals and safe-haven assets. If the conflict worsens, it is expected that the price will skyrocket. On the other hand, the price may undergo corrections if the perception of geopolitical risk in the markets decreases. For example, an understanding on both sides. – Role of precious metals as safe-haven assets
Offer
The supply side remains stable and there are no indications that we will see production increases in the short term. Therefore, this year’s deficit is expected to be one of the largest in history. Silver is widely used in industry and this can be a significant problem. Furthermore, if investment demand continues to grow, it could further worsen the deficit.
Historical Situation and Seasonality
Looking at the historical situation, it is worth noting that we may be experiencing a short-term overbought condition. We observe a 3.5x standard deviation from the 100-session average, which seems extremely high looking at the history of the last 20-25 years. Additionally, we observe a 4.5x standard deviation from the 1-year average, which has generated short-term overbought signals over the past 20 years. At the same time, if we look at the deviation from the 5-year average, it appears that it is far from extreme levels. Given this, if tensions remain, demand remains from investment funds, demand from industry remains and if supply fails to be expanded, the price may continue to rise in the medium/long term. – Learn the story behind the popularity of precious metals
Technical analysis
When analyzing the silver chart in the D1 interval, we can see that the metal broke above the resistance zone marked at $26 two weeks ago and continued to rise. This level was extremely relevant in technical terms, breaking this point led to a rapid upward movement in the price up to the new resistance of $30. Thus, the price reached the highest level since February 2021. However, buyers were unable to break above this zone and the price ended up retreating this Friday.
This marketing communication is intended for informational and educational purposes. It does not constitute investment advice or information that recommends or implies an investment strategy. We do not propose any investment strategy or provide any investment advice in this material.
This material does not take into account the client’s personal financial situation, needs and investment objectives. This is also not an offer for sale or subscription. This is not a solicitation to purchase, advertise or promote any financial instrument. We present facts known to the authors at the time the document was prepared. We do not include any evaluation elements.
Information and research based on historical data or results and projections are not reliable indicators of future results.
XTB, SA is not responsible for the customer’s acts or omissions, in particular for their decisions to purchase or sell financial instruments based on the information contained in this commercial communication. Nor can it be held responsible for any damages that may result from the direct or indirect use of this information.
Investing presents a high risk. Invest responsibly.
This article is authored by XTB.
