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Silver price predictions: prices trail gold, and are poised to consolidate in December

By David Becker

Silver prices forecast: silver will take its directional cues from the US dollar

Silver prices have been sliding during the Q4 of 2019, and they are likely to remain rangebound during the last month of 2019. Silver prices have also trailed gold returns during the past two years, as the yellow metal has outperformed other precious metals. After breaking out into a new range in Q3 of 2019, silver prices have retraced and are currently consolidating. 

Looking forward, the silver price this week and beyond will be driven by trade negotiations between the US and China, global growth, the value of the US dollar, technicals, sentiment as well as demand for electronics and photovoltaic (PV) products.

The fundamentals

The economic data released for November in early December appears to be mixed as traders await the US jobs report scheduled to be released on the first Friday of the month. Manufacturing data was the first piece of information traders received and while the ISM manufacturing index came in weaker than expected, the Markit Purchasing Managers Index beat expectations. 

According to the Institute of Supply Management, the index showed a decline to 48.1 versus an expectation of 49.4 and the previous month’s reading of 48.3. November was the fourth straight month below the expansion level. 

The Fed stated in its last FOMC meeting that they would remain data-dependent but the hurdle rate for additional interest rate cuts was high. With rates unlikely to move lower, the dollar should remain buoyed. Silver is most commonly quoted in US dollars, which means that an elevated greenback would weigh on silver prices.

Trade negotiations between the US and China are also a catalyst that will drive silver prices. President Trump commented while in London in early December that a trade deal with China might not be completed until after the US elections in 2020. He also announced a new round of tariffs against France, Brazil, and Argentina. The new information created a safe-haven bid, helping to buoy silver and other precious metals.

Silver demand

Silver demand is broken down into electronics, PV, and jewellery. The demand for electronics and jewellery continues to be driven by the consumer. The most recent data shows that retail online sales continue to set records. Black Friday and Thanksgiving sales soared. 

Consumer spending continues to be robust, which likely means retail sales of electronics and jewellery are rising. This year's Black Friday shaped up to be a record. Americans spent $7.4 billion online on Black Friday and $4.2 billion on Thanksgiving Day. Cyber Monday sales also hit a record of $9.2 billion.

PV sales are also expected to continue to accelerate, which should be a driving force behind silver demand. According to Taiwanese research company TrendForce, solar panel demand is expected to grow to 122.5 gigawatts in 2019, up 16 per cent year over year, and the acceleration in the uptrend is expected to continue in 2020 according to TrendForce. European PV module demand is expected to surge from 11.9 GW in 2018 to 21.8 GW in 2019. The EU was highlighted as one of the fast-growing markets for 2019, projecting a year-over-year growth rate of more than 50 per cent. An average solar panel uses some 20 grams or 0.643 troy ounces of silver.

The technicals

The daily chart of silver prices reflects a commodity that is consolidating following a 13 per cent decline since silver prices hit their highs in September 2019 near $19.50 per ounce. The 20-day moving average recently crossed below the 100-day moving average, which reflects that a short-term downtrend is now in place. Support is seen near the November lows at $16.62, while resistance is seen near the 20-day moving average at $17.02 and then the 100-day moving average at $17.34. 

Short term momentum is neutral as the fast stochastic recently generated a crossover sell signal in the middle of the neutral range with an upward sloping trajectory that points to consolidation. Medium-term momentum is also neutral as the MACD (moving average convergence divergence) histogram prints near the zero-index level with a flat trajectory that points to consolidation.

Bullish sentiment is rising

Large specs continued to add to long positions in futures and options according to the latest commitment of trader’s report released for the date ending November 26, 2019. According to the CFTC, large specs (which include hedge funds), added to their long positions in futures and options by 2 thousand contracts while reducing their short positions in futures and options by approximately 6 thousand contracts. Current open interest that is long futures and options in the large spec space outnumber open interest that is short futures and options by nearly 3:1, 76 thousand to 27 thousand. This could lead to long liquidation.

Silver is undervalued relative to gold

The gold to silver ratio has dipped slightly after surging to 30-year highs in 2019. Historically gold has outperformed silver during periods of economic contraction, while silver has outperformed gold during periods of economic expansion. During the latest economic expansion this rule did not hold true and gold has outperformed silver. The ratio of gold prices to silver prices are more than 10 per cent above the five-year average and could provide a scenario where silver outperforms gold.

Latest silver price forecast

Silver prices this week and beyond during December could continue to trade sideways, as traders await an impetus that could lead to a falling dollar and rising economic growth. This scenario could unfold if a trade deal between the US and China came to fruition. This would allow an acceleration of growth outside the United States allowing for capital flows to move to Europe, Asian, and Latin America.

In the absence of a trading agreement, the dollar will likely be the driving force behind the future direction of silver prices. The technicals point to additional consolidation with a negative bias as the short-term trend is negative and momentum remains neutral. Sentiment also remains positive as large specs continue to add to long positions which could lead to a long liquidation if negative impetus arises.

FURTHER READING: Silver price forecast 2020 and beyond

FURTHER READING: Gold price predictions for 2020 and beyond

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