Silver price tumbles as fresh risks to global growth emerge

Silver price tumbles as fresh risks to global growth emerge
  • Silver price declined sharply as investors worried about the surging coronavirus cases in the United States.
  • Silver is trading at $17.62, which is lower than this month's high of $18.38.
  • Other metals are also lower, with gold, nickel, zinc, and platinum falling.

Silver price declined by more than 2.2% as investors reacted to the increasing risks of a second coronavirus wave and the ongoing trade war between the United States and Europe. The price is trading at $17.53, which is lower than June’s high of $18.38. Meanwhile, gold price jumped to a seven-year high of $1780 while copper is up by 0.35%.

Silver price falls
Silver price slides

United States coronavirus cases

Silver price dropped partly because of the rising number of coronavirus cases in the United States. According to health officials, the number of cases in the country jumped by more than 36,000 on Monday. That was the highest number since May 1.

US states are also reporting staggering numbers. For example, California reported more than 5,000 new cases while Florida reported more than 3,289 cases. In Arizona, where Trump held a rally yesterday, the number of cases rose by more than 3,500 cases.

These numbers mean that the US has not contained the illness yet. As such, there are increasing risk that several states will issue new stay-at-home orders. Another risk is that the US will be left behind by other countries in Europe and Asia. For example, the EU has said that it will bar American travellers to the region when it opens its borders.

Silver tends to react to these issues because, unlike gold, it is an industrial metal. Most silver that is mined is sold to companies that manufacture jewellery and silverware. Only a small amount of it is bought by investors and central banks. For example, the biggest silver ETF is iShares Silver Trust, which has about $9 billion in assets. On the other hand, the biggest gold ETF has more than $42 billion in assets.

Silver price has also declined in line with other assets. The Dow Jones is down by more than 222 points while the S&P 500 is down by 18 points.

Europe and America trade war

Yesterday, gold and silver price jumped as traders reflected on the upbeat manufacturing and services PMInumbers from Australia, Europe, and the US. These numbers showed that the global economy is staging a gradual recovery as more countries reopen.

Today, in addition to the rising coronavirus cases, the price of silver is reacting to simmering trade tensions between the United States and the US. According to Bloomberg, the US is eying new tariffs from France, Germany, and Spain, worth more than $3.1 billion. The new tariffs will apply to goods like olives, gin, and trucks. Some of these tariffs will climb by as much as 100%.

The new tariffs are in line with a ruling by the World Trade Organisation (WTO) issued last year. The ruling gave the US an upper hand in placing tariffs on European goods because of the illegal subsidies to Airbus. They are also because of the ongoing plans by Europe to impose taxes to American technology giants.

These tariffs matter to silver price because they hinder trade between the two sides. By hindering trade, demand for silver-made products may fall.

Silver lining for silver prices

There are hopes that the current decline in silver prices will not last long. Analysts expect the price to continue moving upwards, albeit gradually. In a note released on Friday, analysts at Goldman Sachs said that the price will reach $19 this year, $21 in 2020, and $22 in 2021. They are not alone. In a recent report, analysts at Bank of America said that silver price will reach $20 this year.

Another hope is that increased infrastructural spending around the world will lead to more demand. With central banks printing trillions of dollars, analysts believe that some of the funds will go to silver and base metals. For example, analysts believe that demand for silver will rise as more countries invest in 5G.

Silver price technical analysis

Silver Price
Silver price technical outlook

The weekly chart above shows that the silver price is in its third straight week of gains. The price is above the 50-day and 100-day exponential moving averages. The RSI is moving sideways. Also, the price appears to be forming a bullish pennant pattern. This means that the price may continue rising as bulls target the important resistance at 19.00. On the flip side, a move below $17 will invalidate this prediction. This is an important psychological level as well as the lowest level on June 15.

By Crispus Nyaga
Crispus Nyaga is a finance analyst and trader with more than 7 years industry experience. He's contributed to some of the leading financial brands in the world including Seeking Alpha, MarketWatch, Forbes, and Investing.com. Crispus has an excellent understanding of global macroeconomic and geopolitical issues, is a big fan of golf, and lives in Nairobi with his wife, son, and nephew.
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