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Silver technical analysis for March: the price is declining in tandem with other commodities

By David Becker

As economic growth slows down this month, the industrial demand component of silver is likely to decline

Silver prices continue to face headwinds in March despite a continued rise in gold prices and a flight to a safe-haven asset. They were under pressure in late February as the dollar continued to gain strength but was unable to gain traction as the Fed cut interest rates and the greenback moved lower. While gold prices are trading at the top end of their seven-year highs, silver, which is considered both a precious metal and an industrial metal, is lagging. Also, silver reacts in a similar way to copper, the price of which has broken down to a 2.5-year low.

During March, silver has been unable to gain traction as investors put more weight in it as an industrial metal than a safe-haven asset. In February, the fear of the coronavirus was spreading but the US was considered a flight to safety. Once investors started to sell the US stock market and US yields started to tumble, silver prices felt additional pressure.

The future growth story has been eroded which has weighed on silver prices. Silver has also declined in tandem with other commodity prices. Oil prices tumbled on March 9 by 30 per cent putting downward pressure on the entire commodity complex. And Chinese demand for industrial metals like silver should continue to decline for the balance of the month of March.

Implied volatility

Despite the lack of movement in silver prices implied volatility has climbed to an 18-month high and is poised to set a fresh six-year high. Silver implied volatility which measures the implied volatility on the “at the money” strike prices for the SLV ETF, has surged above 31 per cent and is poised to climb above 34 per cent in early March. These extreme levels of implied volatility show investors that options traders are extremely concerned about the future price level of silver and believe that it will potentially change by more than 31 per cent over the next 12 months. This is approximately double the implied volatility lows seen in silver in December at 16 per cent.

Silver price technical analysis

The weekly chart of silver prices shows strong weekly support near the 50-week moving average near 16.68. Resistance is seen near the 10-week moving average at 17.72. Medium-term momentum has turned negative as the fast stochastic generated a crossover sell signal. This occurs as the MACD line (the 12-week moving average minus the 26-week moving average) crossed below the MACD signal line (the nine-week moving average of the MACD line). The MACD histogram is printing in the red with a declining trajectory which points to lower silver prices.

Short term momentum is negative as the fast stochastic generated a crossover sell signal and is accelerating lower. The current weekly reading on silver prices is 23, just above the oversold trigger level of 20.

Silver price forecast for March: the bottom line

Silver prices have not benefited from a weaker dollar or strong gold. It appears to be declining in tandem with other commodities such as oil. The industrial demand component of silver is likely to decline as economic growth stalls in March. Until there are signs of a rebound in growth, silver prices will likely remain under pressure.

FURTHER READING: Is gold a good investment? Five ways to buy it – the pros and cons

FURTHER READING: Tokenised commodities: what you need to know

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