Silver is the new indicator of market panic

XAG/USD

Key zone: 73.50 -77.00

Buy: 78.50 (on strong positive fundamentals); target 81.50-83.50; StopLoss 77.80

Sell: 71.50 (on a decisive break above 73.50); target 67.50-66.00; StopLoss 72.20

The shocking rise in silver prices of more than 140% last year is now scaring away not only speculators but also major investors. High prices continue to pressure demand, and the decline is likely to continue until the price breaks out of the current range.

Thanks to its wide range of industrial applications, silver is more sensitive to speculative sentiment than gold. Therefore, synchronized movement between these two metals should not be expected.

For professional traders, the current situation is particularly interesting because the silver market has found itself at the intersection of opposing fundamental factors.

• An actual supply deficit has persisted for the fifth consecutive year. Even with declining overall demand, consumption still exceeds supply, which potentially guarantees investment interest in silver-related assets.
• Signs of cooling industrial demand are emerging, even though this sector accounts for more than half of global silver consumption.

Reminder:

In May, both spot and futures silver prices rose, and on May 14 they traded near $87. Another wave of selling subsequently led to stabilization in the $75–78 range. The spot market has already recovered yesterday’s speculative decline of 3.7%, but U.S. silver futures for delivery next month remain at $72.16.

For professional traders, the current situation is particularly interesting because the silver market has found itself at the intersection of opposing fundamental factors. On one hand, a supply deficit persists and precious metals remain highly attractive as investment assets. On the other hand, signs of weakening industrial demand are emerging, despite the fact that it accounts for more than half of global silver consumption.

The current investment scenario does not guarantee a full risk premium. Despite the continuing structural market deficit, there are currently no fundamental prospects for a recovery in silver prices.

And what is the result?

The key factor in the coming months will be the pace of change in industrial demand, primarily from China, the solar energy sector, and the electronics industry.

• For short positions, the strongest combination of signals appears to be: weak PMI data, deteriorating economic figures from China, ETF outflows, rising Treasury yields, and a strengthening DXY.
• For long positions, a different set of confirmations is required: a recovery in Chinese industrial demand, new incentives for the solar sector, sustained ETF inflows, and declining real interest rates in the United States.
In other words, buying silver solely because of a “market deficit” is risky at the moment.
• Under weak macroeconomic conditions, it is preferable to sell from resistance levels or use put options.
• If ETF flows reverse and yields decline, purchases on pullbacks may be considered, but only with strict risk management due to high volatility.

An additional factor putting pressure on the precious metals market will be Federal Reserve rate hikes. Warsh will certainly try to prevent such a collapse, but the market may prove stronger than policy.

So we act wisely and avoid unnecessary risks.

Profits to y’all!