Silver could spend more time in consolidation below $30 despite global demand exceeding supply.
Silver is one of the precious metals offered to retail traders in the form of a Contract for Difference (CFD). Also known as the “poor man’s gold,” silver made headlines this year as retail traders rallied on Reddit to manipulate the price higher. The attempt failed, just like previous attempts by investors to corner the market.
The COVID-19 pandemic led to a sharp rise in the price of silver and other commodities, but the silver price subsequently declined as the price of gold also declined from the all-time high price it hit in August last year.
Silver remains affected by lockdown restrictions that have led to the largest annual drop in mine production. Now that mining is recovering, supply is forecast to grow by 8% in 2021, but demand will grow even faster and is expected to surge by 15%.
What May Move the Silver Market in 2021?
The silver price chart shows a tight range in 2021. After forming a double bottom in the $22 area, silver’s advance has been met with nothing but sell orders. The Reddit effect, while strong enough to generate a gap at the opening of that trading week, was quickly reversed in the day that followed.
Silver has many uses, and like any commodity, it is used by investors to hedge against inflation. Therefore, its volatility goes beyond the investment industry. Recycling is a big part of the silver industry, as are photography, jewelry fabrication, and silverware.
Supply and demand play an important role in the correct pricing of a commodity, and global demand is forecast to exceed supply in 2021. Judging only by the differential between supply and demand, the average silver price is forecast to rise by more than 30% this year alone.
On the speculative side, Reddit users failed to manipulate the price higher because the silver market is much bigger than any individual stock (and is therefore hard to move). Thus, consolidation has been the norm so far this year.
In summary, the silver price seems capped at $30 while having strong support at $22. A breakout in either direction should trigger more interest in the silver market.