Could it end China’s zero-covid spur silver rally?

Silver jumped more than 5% on Tuesday morning amid speculation that China could end its strict zero-COVID policy swept across social media. However, this news has not yet been confirmed by official spokespersons. As of this writing, silver is trading at around $19.6 per troy ounce, while gold is trading at $1,644 per troy ounce.

However, investors are still keenly aware of the US Federal Reserve’s November meeting scheduled for Wednesday, at which another 75 basis point hike, which will continue to support the current aggressive monetary policy, is anything but a done deal. .

Silver jumped more than 5% on Tuesday

Why is money skyrocketing right now?

Silver jumped on Tuesday morning following reports of an unverified social media post making the rounds in China discussing the establishment of a committee to mark the exit from current policies. of zero COVID for the country. However, later in the day the metal stabilized somewhat, following Zhao Lijian, a spokesperson for the Chinese Foreign Ministry, declining to have any knowledge of such a committee.

Silver occupies a unique position as it is considered both a precious metal and an industrial metal. Currently, however, it is influenced more as an industrial metal. If rumors of China lifting or easing its current COVID-19 restrictions are confirmed, manufacturers will certainly get a boost.

This will likely lead to increased demand for silver from solar panels, of which China still retains the overwhelming majority. China’s share of global solar panel production has risen from about 55 percent to about 84 percent over the past 12 years, according to this report.

Silver is a key component of solar panels, due to its use in photovoltaic energy, which powers some of the world’s major renewable energy sources. With approximately 20 grams of silver used in each solar panel, it continues to be a vital source of demand for the precious metal.

In addition, silver is also used in batteries, photography, dentistry, semiconductors, etc., which are also likely to contribute to the increase in demand, if China’s current policies are relaxed. somewhat.

However, easing silver prices somewhat, Xi Jinping is still expected to double down on his zero COVID laws, as part of his third term’s heightened focus on national security. Investors are still hopeful that a turning point has been reached, with executives finally taking notice of increased market fatigue with tough regulation.

Analyst Views on Silver

Piero Cingari, markets specialist at Capital.com, believes that if the news that China is easing its current rigid zero COVID policy is true, it could well be a game-changer for the entire metallurgical complex. However, all eyes remain on the US Federal Reserve’s November meeting on November 2, as everything will depend on the outcome of the Fed’s decision.

Cingari also points out: “If the Fed does not oppose the most recent market consensus, which predicts that rates will peak in 2023 and then fall again, this could lead to a recovery in metal prices. The biggest unknowns are, of course, inflation and the resilience of the US labor market.

However, the most recent inflation and GDP figures do not seem to give much hope for the Federal Reserve to take a dovish turn in the near future. If the Fed seems hawkish again and signals that the tightening of monetary conditions will continue for a long time, could revive confidence in the course of the dollar and Treasury yields, putting downward pressure on the metals.

What is the silver outlook for the rest of 2022?

Silver prices are still trading below the psychologically important $20 per troy ounce level and although they have been moving closer to that level in recent weeks, investors are not holding out much hope that silver crosses $20 in the last months of the year. This is mainly due to the current trend of monetary policy tightening by central banks around the world.

The upcoming decision of the US Federal Reserve’s November meeting is likely to have a significant impact on silver prices, as another 75 basis point rise this month would not be hailed as good news. However, as this has mostly already been priced in by investors, they will be waiting more for the Fed to shed some light on its plans for future rate hikes.

Additionally, investors will also be keeping an eye out for new laws created by the National People’s Congress at the start of Xi Jinping’s historic third term as they will dictate the pace of China’s economic recovery. Since recent data on Chinese factories has not been so promising, these upcoming laws are even more vital for China’s industrial and manufacturing sector.

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