Silver analysis: precious metals gearing up for next leg higher

The US dollar continues to weaken, particularly against safe-haven currencies like the Japanese yen, while high-beta currencies have yet to see a sharp movement. This ongoing softness in the dollar creates an opportunity for precious metals to rise. Gold remains a spitting distance away from reaching its previous record high made just a couple of weeks ago. Silver, on the other hand, has been held back because of fears about China’s economy, undermining prices of other base metals like copper and iron ore, as well as hurting crude oil. Still, our silver analysis suggests that if stock markets were to stabilise, the grey metal could benefit more profoundly from the declining US dollar. The longer-term silver outlook remains as bullish as ever.

Short-term silver analysis: Weakening US labour data undermines dollar

This week, US labour market data has been underwhelming. First, JOLTS job openings disappointed on Tuesday with a print of 7.67M vs. 8.09M eyed. This was followed by today’s ADP private sector payrolls, which rose by just 99K—far below the expected 144K. The previous figure was also revised lower. Meanwhile, the employment component of the ISM services PMI pointed to a slower growth, printing 50.2 – just about holding in the expansion territory – versus 51.1 last month.

For the dollar to continue falling, more negative economic data will be crucial. Friday's upcoming payroll report will be a key moment.

Still, any short-term dollar gains may be limited, given that the Fed is signalling rate cuts. This dovish stance caps the dollar's upside, making silver attractive for some. Our silver analysis is therefore tilted towards the bullish side of things as we think weak US data should keep downward pressure on the dollar, boosting metal’s prices. If the trend continues, silver is likely to benefit from both the weakening dollar and growing demand for safe-haven assets.

Silver analysis: China concerns vs. demand amid drive towards cleaner energy

Market’s perception about demand in key economic regions like China is not very optimistic right now, as indicated by falling prices of crude oil, copper and iron ore, among other things. Along with China, one of the world’s largest gold consumer nations, major European economies have also struggled for economic growth, while growth in the US has slowed down markedly. This may hurt retail jewellery demand for silver.

But investment demand is likely to remain elevated due to haven flows in precious metals, and expectations of strong demand for silver in the future amid the drive towards cleaner energy in China and across the world. Its unique characteristics render it essential in industries that demand the utmost reliability, precision, and safety. As the world shifts towards greener energy, silver's significance is only likely to grow.

Technical analysis: Silver poised for bullish breakout

Source: TradingView.com

Silver’s highs lows on the daily time frame suggests the precious metal remains on course to potentially break more decisively above the key $30 handle this time around, particularly with gold price near an all-time high. If and when it does break the $30 barrier, it will have taken out the bearish trend line that has been in place since May. Ahead of $30 handle, it still needs to get back above $29.00, which has been a pivotal level in the last couple of weeks. Meanwhile, short-term support comes in at $28.36, followed by $28.00.

So, our silver analysis is bullish but due to the reasons stated above, a clean break above the bearish trend line is now needed for confirmation that the bullish trend has resumed.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the company you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.