Silver may start short-lived correction. Forecast as of 18.06.2024 | LiteFinance
Despite the pullback, silver remains confident. Slowing US inflation, strong demand in Asia, and rapid growth in industrial use can only excite XAGUSD bulls. Let’s discuss these aspects and make a trading plan.
Monthly fundamental forecast for silver
A double whammy from Asia and North America pushed silver down from 11-year highs. Impressive US job growth in May spooked XAGUSD bulls with the possibility of the federal funds rate remaining at 5.5% for longer, and the People’s Bank of China’s halt to gold purchases in May affected the entire precious metals market. However, silver recovered quite quickly.
In 2023, silver barely rallied due to the slow recovery of the Chinese economy after COVID-19 and the rapid growth of the US GDP, which forced the Fed to aggressively tighten monetary policy to curb inflation. However, in 2024, the white metal emerged as one of the leaders in the commodities market. Its value increased by 23.3%, outpacing gold by 10 pp.
One of the factors is frenzied demand in China, where premiums between Shanghai and London are $10-12 per ounce amid the rapid depletion of silver exchange-traded reserves. The situation is similar to what happened in the gold market in late 2023. Premiums were just as high then but are now down to $2.
Silver price and premiums in Shanghai and London
Source: Kitco.
The value of the white metal in yuan has risen by 15% since the beginning of January. It is not easy to find a more efficient investment tool. Moreover, high gold prices lead to its substitution for cheaper alternatives. First of all, this concerns the jewelry industry. The industrial demand for silver is high. Its share is growing steadily, reaching 55%. At the same time, the production of solar panels, electric cars, and artificial intelligence technologies paints a bright future for XAGUSD.
Silver demand breakdown
Source: Kitco.
Solar power has nearly tripled silver demand in a dozen years. While it accounted for 5% in 2014, it increased to 13.8% in 2023. After the 1 million electric vehicles sold in the US in 2023, a 52% increase from 2022, 17 million are expected to be sold worldwide in 2024. By 2035, the IEA predicts a complete transition to electric vehicles. The white metal used in manufacturing is sure to benefit.
Just as it will if the International Energy Agency’s forecasts of demand growth to 105.4 million bpd, supply growth to 114 million bpd, and an oil market surplus of more than 8 million bpd in 2030 prove accurate. They mean an era of low energy prices, which will lead to deflation worldwide and require ultra-loose monetary policy from central banks led by the Fed. Massive interest rate cuts and weakening fiat currencies, headed by the US dollar, will create a tailwind for all precious metals.
Monthly trading plan for silver
Therefore, one should not be afraid of a correction in the XAGUSD. It creates an opportunity to open long trades with the prospect of prices returning to record highs near $50 an ounce. Long trades can be considered on pullbacks to $28.2 and $27.5, as well as the return of silver above $30.3.
Price chart of XAGUSD in real time mode
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.
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