is the market at a crossroads?

The silver market had an impressive rally over the summer, climbing 149% from March 2020 lows to a seven-year high in August 2020, approaching $ 30 an ounce. But the price then fell 23% back to the $ 22.50 level at the end of November 2020.

What does this mean for the price of silver in December 2020? Is there a possibility of further downside or is the market presenting a buying opportunity?

Read on for a review of recent market performance and a video in which Capital.com Chief Market Strategist David Jones provides detailed silver chart analysis and suggested trading setup.

Silver news: precious metals do not react to the fall of the dollar

Market watchers expected the price of silver to strengthen after the US presidential election, but the market fell in November after an initial spike. The price of gold followed, keeping the gold / silver ratio – the number of ounces of silver needed to buy an ounce of gold – close to 79 in November as it had been in October.

The average daily volume of silver cleared by the London Bullion Market Association (LBMA) in October fell 21.5% to 226.7 million ounces, according to the latest data. This was its lowest level since August 2019, as trade interests fell after summer highs. The value transferred declines 26.5% to $ 5.5 billion.

As the U.S. election loomed, many analysts expected that if Democratic candidate Joe Biden won, the dollar would weaken at the prospect of the new administration adopting yet another round of economic stimulus. Precious metal prices generally trade in an inverse relationship to the dollar, indicating that silver would rise. However, while the US dollar index has fallen 3.6% since early November to approach the 90, an almost three-year low, there has been no corresponding movement in the price of silver.

As the dollar fell, the price of silver started in November at $ 24 an ounce, fell to $ 22.50 an ounce at the end of the month, then rebounded to $ 24 an ounce in early December. .

Industrial demand also suggests that silver has upside potential. Consumption in industries such as electronics, solar panels and water purification accounts for around two-thirds of the silver market and is picking up after the shutdown of manufacturing during Covid-19 restrictions. There is more optimism about the health of the global economy in 2021 after several pharmaceutical companies announced successful vaccine trials.

Caixin’s Purchasing Managers Index (PMI) rose from 53.6 in October to 54.9 in November, the fastest improvement in conditions since November 2010. A number above 50 indicates growth of l manufacturing activity, while a number below 50 denotes a contraction. The health of the sector in China has improved for seven consecutive months, indicating a “sustained and strong recovery” from the lockdowns at the start of the year.

The bullish trend in the silver market this year has typically seen the price rebound after a decline, but has the momentum now faded?

Watch this silver price analysis video in which David Jones, Chief Market Strategist at Capital.com, examines if there is an opportunity for trading at current levels.

Silver Price Analysis For December 2020: Is It Time To Buy Before Higher Prices In 2021?

Silver’s long-term downtrend came to a halt this year after hitting a low of $ 12 an ounce in March. Some analysts remain bullish on the outlook, with forecasts as high as $ 30 an ounce like ANZ, while ABN Amro expects the price to stabilize around current support.

Technical analysis for Silver shows strong support at $ 21.65-22 per ounce. The Relative Strength Index (RSI) was oversold in late November for the first time since September and the price moved below the Bollinger Bands, also suggesting it was oversold. The moving average convergence divergence lines (MACD) have converged into a buy signal.

However, when there is such certainty that an asset price will move in a certain direction, the market can defy expectations. If there is a much larger sale, the price of silver could drop back to $ 18 an ounce. The aggressive trade should be a long with a stop-loss in place of $ 21.30-21.50 an ounce.

Ole Hansen, Head of Commodities Strategy at Saxo Bank, said: “Gold and silver are doing what they do best again, which is frustrating investors. While hopefully the successful deployment of vaccines next year will support growth and the stock market, we are also seeing favorable winds for investment metals. The dollar is likely to weaken as investors look to emerging markets for better opportunities, especially if bond yields rise, thus reinforcing the rotation to value from momentum. ”

“With former Fed Chairman Janet Yellen likely heading to government as Biden’s pick for Treasury Secretary, the doves will fly, both to the government and to the Federal Reserve. With that in mind, we are likely to see more, not less stimuli over the next few months. Such actions may increase the risk of central bank overcompensation, thereby reigniting reflation trade. “

Phillip Streible, chief market strategist at Blue Line Futures, commented in a recent silver analysis: “Why have so many people thrown in the towel this week on gold and silver? They believe with a deployment of Covid-19 vaccines; the global economy will recover more quickly, limiting the attractiveness of government bonds; therefore pushing yields higher and chasing riskier assets. ”

“I predict they will eventually come back to the market at much higher levels. They forget that policymakers will provide additional fiscal and monetary support, in turn pushing inflation expectations much higher. They also forgot that the US dollar would most likely fall another 5-10% against its counterparts, leaving the Euro / USD at 1.25. They also forgot about the green spending plans promised in China, Europe and the United States, and their impact on the price of silver.

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade a CFD.
You can still benefit if the market moves in your favor, or suffer a loss if it moves against you. However, with traditional trading, you enter into a contract to exchange legal ownership of individual stocks or commodities for cash, and you own it until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the total value of the CFD trade to open a position. But with traditional trading, you buy the assets for the full amount. In the UK there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs come with overnight costs to hold trades (unless you’re using 1 to 1 leverage), making them more suitable for short-term trading opportunities. Stocks and commodities are more normally bought and held longer. You could also pay a commission or brokerage fees when buying and selling assets directly and you would need a place to store them safely.

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