Silver price forms a bullish pattern as SLV ETF inflows rise

Silver price suffered a harsh reversal, falling from $34.86 on Oct. 21 to $34.47 on Friday. It remains much higher than the pandemic low of $13.80, and is a few points below its highest level in a decade.

SLV ETF inflows rise

Silver retreated even as investors continued moving into the iShares Silver ETF (SLV), which is a popular fund with over $15.76 billion in assets.

Data by ETF.com shows that the fund, which tracks silver, has had net inflows of $1.3 billion this year. This trend continued in October as it added $398 million, higher than the previous month’s $113 million.

The fund gained more inflows as the gold/silver ratio remained in a deep consolidation. It was trading at $84, where it has been stuck at in the past few months. This ratio looks at the amount of silver that is equivalent to one ounce of gold. 

The rising silver inflows happen as the metal maintains a mix of healthy fundamentals and technicals. 

Fundamentally, it is reacting to the ongoing investments in clean energy, especially solar energy. Silver is an important metal used to manufacture solar panels and other items.

The challenge, however, is that the global manufacturing sector is under pressure, with the PMI figures in key countries like the United States and China remaining in a contraction zone. Also, the IMF recently downgraded the outlook for the global GDP, citing weakness in China, and a potential Trump administration.

Silver’s two catalysts ahead

Silver and the SLV ETF will have two key catalysts this week. First, the Federal Reserve will deliver its interest rate decision on Wednesday. Analysts believe that the bank will cut interest rates by 0.25% in this meeting, the second consecutive month it happened. 

It slashed rates by a whopping 0.50% in the previous meeting as it expressed concerns about the labor market, which has been deteriorating. 

Last Friday’s jobs numbers showed that the economy was not doing well as it created just 12,000 jobs. 

The Fed is also encouraged by the fact that inflation is on a path towards 2.0%. Data released last month showed that the headline consumer price index (CPI) and personal consumption expenditure (PCE) retreated to 2.4% and 2.2%, respectively. 

Silver, just like gold, does well when the Federal Reserve is moderately dovish since it draws risk-taking investors. 

The other key catalyst for the silver price will be the upcoming US election, in which Kamala Harris and Donald Trump will take on each other. Polls are tight, making it hard to predict who will win. As such, the presidential winner will have a big impact on silver and other assets.

Silver price analysis

Silver chart by TradingView

The weekly chart shows that the price of silver rose to $34.86, and then suffered a harsh reversal, moving to $32.47. This was a notable level since it was the previous year-to-date high, and where it formed a double-top pattern.

Silver has formed a break and retest pattern, which is a popular sign of continuation. It remains above the 50-week moving average, meaning that bulls are in control for now.

Therefore, silver will likely resume the uptrend, with the next point to watch being at $34.87. A break above that level will be a confirmation of a bullish breakout, which will lead to more gains as bulls target the key resistance level at $40.  

The alternative scenario is where silver recoils and retests the next psychological level at $30, its highest swing on Feb. 1, 2021.