Is Silver a buy or sell right now?

By: Michael Harris
Michael Harris
Specialising in economics by academia, with a passion for financial trading, Michael Harris has been a regular contributor to… read more.
on Oct 16, 2020
Updated: Oct 17, 2020
  • The silver price has surged 38.3% year-to-date compared to gold’s 25.7%
  • A physical demand for silver jumped by 12.3% in 2019, compared to 2018
  • Silver bulls need to break $27 on a daily/weekly basis to open the door for a trip above the $30 mark

Similar to other precious metals, silver performance was outstanding this year. Silver prices has surged 38.3% year-to-date compared to gold’s 25.7%.

Fundamental analysis: A high demand

The big part of that surge occurred in the third quarter during which silver surged 33%. Demand for silver has been through the roof recently and the Silver Institute categorized that demand across 5 groups: industrial, photography, jewellery, silverware, and physical investment.  

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In four of those, the demand was slightly lower in 2019, compared to a year before. But in the industrial category, demand for solar panels recorded a 6.7% surge.

However, the biggest increase has been registered in the physical demand, where the demand for silver jumped by 12.3% in 2019, compared to 2018. Analysts believe that this trend will also continue this year, thanks to the impressive price gain year-to-date.

Furthermore, analysts at investment bank Goldman Sachs estimated worldwide solar installations to grow by 50% between 2019 and 2023 as green energy silver demand moves up.

One of the signs pointing to the ‘stickiness’ of silver ETF purchasing has been detected in the activities of Robinhood account owners.

Four different periods of weakness have been identified since the silver stocks selloffs in March through SIL ETF.  The number of SIL owners slightly slipped in March, but after that, they hardly weakened even after a price pullback.

Technical analysis: Buyers eye levels above $30

The so-called “smart money” silver hedgers are lacking around 56,000 contracts, indicating that bullish sentiment is still not likely. Given the metal’s 2020 performance, we may see a longer consolidation before another rally takes place. 

Silver weekly chart (TradingView)

For the consolidation to end, the silver price would likely have to travel the north of $27. The horizontal resistance comes around $26, while the descending trend line that connects two latest swing highs is now located at about $27. If silver buyers push through this resistance, then watch out for a move to $30.60.

Summary

Silver prices have skyrocketed this year, recording a 38.3% price surge since the start of 2020 thanks to an extraordinary rise in demand across various categories, especially physical. A move above $27 on a daily/weekly basis is likely to open the door for a trip above the $30 mark.

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