Silver Price Prediction as Industrial Production Fades

Oct 1, 2021 11:50 AM ET
Silver Price Prediction as Industrial Production Fades

The silver price has been under intense pressure in the past few weeks. The metal is trading at $22.10, which is about 27% below the highest level this year. The current price is hovering near its lowest level since July last year.

Industrial production

Silver is a dual-purpose metal that is both a precious metal and an industrial metal. As an industrial metal, silver is used to manufacture several things like mirrors, kitchenware, and jewellery. It is also used in the manufacture of solar panels.

Recent data from several key countries has shown that global industrial production has been declining substantially in the past few months. For example, in China, data showed that production has fallen in the past five consecutive months. 

Additional data published this week showed that the manufacturing PMI crashed to the contraction zone in September. The same trend has happened in other countries in Europe and the United States.

Therefore, there is a major concern that demand for silver will start waning in the coming months. Besides, the challenges facing manufacturers are enormous. For example, in China, there is currently an ongoing electricity shortage because of the rising energy costs as coal and natural gas prices surge. 

At the same time, there are logistics challenges as the global shipping industry faces its biggest challenge on record. The shipping challenge is mostly because many ships are currently stuck at several ports in California, Rotterdam, and other places.

US congressional showdown

Another reason why the silver price is struggling is in the United States. The country is currently seeing a major congressional showdown that has put the bipartisan infrastructure deal at risk. The infrastructure deal is a $1 trillion package whose funds will be used in improving several components of the American economy.

This infrastructure package is important for silver prices because of the climate change aspect. As part of the deal, the US will invest billions of dollars in clean energy infrastructure like solar panels. Therefore, if passed, it will lead to more demand for the metal. 

Another congressional showdown that is putting silver prices at risk is about the US debt. Over the years, the country has increased its deficit spending, which has pushed the overall debt to more than $28 billion. Now, there are concerns that the country will start defaulting on its obligations if Congress does not lift or suspend the debt ceiling.

Federal Reserve

The silver price has a precious metal or store of value role just like gold. As such, the metal tends to react to actions of the Federal Reserve. In its decision in September, the Federal Reserve committed to leave interest rates unchanged at the range of 0% and 0.25%. At the same time, the bank pointed out that it would do at least 7 rate hikes until 2024. It will also start tapering its asset purchases in the coming months. 

In theory, a hawkish Federal Reserve is often negative for silver prices because it leads to a stronger US dollar. Indeed, the dollar index has jumped to the highest level since September last year.

Silver price forecast

The daily chart shows that the silver price has been in a major sell-off in the past few months. Along the way, the metal has formed a death cross, which happens when the 200-day and 50-day moving average make a bearish crossover. The Relative Strength Index (RSI) has been in a bearish trend as well.

Therefore, the metal will continue falling in the near term as bears target the key support at $20. This view will be invalidated if the pair moves above $25.

The daily silver price chart

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