Silver prices may lose further 6% in June

Silver prices may lose further 6% in June
  • Parts of Beijing are on lockdown again due to the increase in COVID-19 infection numbers
  • Silver trading 1.3% lower today, heading south in line with the equity markets
  • A head and shoulders formation activated on the daily chart, pointing towards more losses for the silver metal

Silver prices are trading around 1.3% lower today as investors fear a reduced consumer demand for precious metals due to troubled economies. Prices can drop further 6% if the activated head and shoulders pattern is completed in the coming days and weeks. 

Fundamental analysis: March all over again?

Global markets appear to have moved into the risk-off sentiment again as stocks have continued to move lower in the past few days. Similar to developments in March, the safe-haven assets are also moving lower as investors worry that the second wave of COVID-19 is coming. 

According to local reports in China, parts of Beijing are on lockdown again, while cases in some U.S. states are also on the rise as businesses reopen. It is reported that 79 cases were confirmed in four days in China, which means that the coronavirus identified in Beijing is more contagious than the one found in Wuhan.

“China has effectively contained the outbreak, but it was surprising that Beijing was suddenly tested by a local outbreak. China’s epidemic prevention has always focused on the arrival of overseas personnel, and now we should pay enough attention to the customs quarantine of imported agricultural products,” said Yang Zhanqiu, deputy director of the pathogen biology department at Wuhan University.

Similar to silver, gold prices are also trading lower today with the yellow metal trading 0.5% in the red. 

Technical analysis: Bearish reversal pattern activated 

Silver prices are trading 1.3% lower on the day. The price action moved south to test the 200-DMA near the $17.00 handle, and the buyers used this level to facilitate a mini-rally in the afternoon and erase a portion of earlier losses. 

Silver daily chart (TradingView)

However, the price action has created a head and shoulders pattern on the daily chart. This bearish reversal pattern has been activated today, with the sellers targeting a move to $16.20 in the coming days to complete the formation. As a result, it looks like the bullish run is over with silver prices expected to drop 6% on this bearish chart formation.

This area also hosts the 100-DMA and may act as a magnet level to attract the price action and another opportunity to buy the silver metal at a level that offers a good risk-reward ratio.

Summary

Silver prices have moved lower in line with equity markets as new reports from China and the United States show an increase in infection numbers. Silver prices have created a head and shoulders formation, which can take the price action further lower in the coming days. 

By Michael Harris
Specialising in economics by academia, with a passion for financial trading, Michael Harris has been a regular contributor to Invezz. His passion has given him first hand experience of trading, while his writing means he understands the market forces and wider regulation.
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