Short term: Up
Medium term: Up
Long term: Up
Resistances:
R1 15.97 Apr 2020 high
R2 15.99 Bottom of channel




Support:
S1 15.27 recent low
S2 14.87 Apr 7 low
S3 13.82 Apr 1 low
S4 11.66 Mar low
Stochastics:
Neutral
Legend:

BB - Bollinger band
DMA - daily moving average
HSL - horizontal support line
SL - support line
MACD - moving average convergence divergence
U/DTL - up/downtrend line
RSI - relative strength index
H&S - head-and-shoulder pattern




Analysis 
  • Prices are consolidating in high ground after the April 10 high all but reached the bottom of the overhead channel.
  • This "V-shaped" run-up has therefore tested the breakdown point (the break below the channel) to see if there is still selling interest around at the level where prices initially broke lower in mid-March.
  • A move back into the channel would suggest the reasons for selling are no longer factors in the market. 
  • The stochastic lines are consolidating in high ground; while they hold, there is still potential for further gains.
  • The rangebound trading up in high ground suggests buyers and sellers are equally matched, at least for now.  
Macro drivers

 

The extent of the damage that lockdowns have caused the global economy are enough to scare anybody and the uncertainty this has produced is bound to see more investors take shelter in haven commodities. While gold is the natural choice, the apparent shortages of available gold are likely to mean that investors also look at silver too, especially as it is so cheap relative to gold - the gold:silver ration is at 1:111.

Mine production cutbacks will have led to a fall in silver mine output, but there is no shortage of above-ground silver, so that is unlikely to be a real bullish factor for silver. Indeed, silver supply may well pick up since silver is accumulated by rural communities in many developing countries as an insurance against bad times, such as these. But this does mean they end up selling into the crisis as they need the money to buy essentials.

The demand shock that the Corvid-19 crisis has created will have hit industrial demand for silver, but while governments invest in infrastructure projects, solar farms may well benefit, especially since the downturn in economic activity has meant city populations have seen just what a world with less pollution looks like.

    Conclusion

     

    Given so much uncertainty, it seems likely the majority of investors are looking at wealth-protection rather than putting too much at risk looking for bargains. While equities may be rebounding now in response to all the monetary and fiscal stimulus, the rebounds may struggle in the face of actual data showing how bad things have become. As such, we think the main bullish case for silver is that it is a relatively cheap proxy for gold. 

     

    All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.