Silver Price Forecast – August 2024

Key Takeaways

• Despite a more challenging market, investor demand for silver seems resilient.
• China’s Third Plenum offers mixed support for silver consumption.
• Silver is currently trading between proximate major support and resistance levels.

Silver Demand Weathers Weak Data  

Silver has made marginal gains over the last month, despite benefiting somewhat from the easier rate environment that has supported gold but leaving the gold/silver ratio above 82. The weak economic momentum noted in the previous Forecast has continued with weak manufacturing PMIs being registered in the Eurozone, the US, Japan and China. 

The weaker-than-expected Q2 China GDP print was particularly troubling and prompted a surprise token rate cut from the People’s Bank of China (PBoC). Overall, the data suggests net positive economic surprises in the Eurozone are at a 7-month low, the global economy at a 12-month low and the US has posted a small recovery from a near-2-year low. The weak picture has bolstered the case for rate cuts later in the year.

We noted in last month’s Forecast that silver investment demand had appeared to be resilient in the face of disappointing performance and this seems to have continued in recent weeks. Although slowing, aggregate physical silver ETF flows remain positive month-on-month (1), the most recent Commitments of Traders (CoT) report from the CFTC suggests that speculative silver futures positions have been at the highest level since February 2020 (2). While it is far too early to suggest that silver has entered a new investment paradigm, it does seem that its trading dynamic is evolving as investors seek out uncorrelated returns from a range of alternative assets. 

China’s Third Plenum Offers Mixed Support for Silver

We flagged some time ago that China’s Third Plenum meeting in July could be a pivotal moment in China’s economic and industrial development and that this would likely impact China’s future consumption of silver. Expectations were high, not only because China’s economy is now facing clear challenges but also because this Plenum was the first since 2013 to deal directly with economic policy. With the meeting now concluded and the policy blueprint published, it appears to offer mixed support for silver. Thus far, the market reaction has been muted. 

The positive news is that Beijing is reaffirming its commitment to reinforcing its leading position as an industrial powerhouse, with particular emphasis on high-tech, smart and green manufacturing. In principle, this should underpin China’s silver demand over the short to medium term. 

A less positive aspect of the blueprint is that new specific measures to support domestic consumption are largely absent and we are now 17 years on from former Premier Wen Jiabao, who described China’s economy as ‘unstable, unbalanced, uncoordinated and unsustainable’. Sustainability remains an issue and maintaining an economy so aggressively focussed on net exports risks further straining trade relations with the West. While this form of political risk may be positive for gold, it is less clear that it is helpful for silver. 

Technical Analysis

Silver’s volatile consolidation over the past two months now presents us with a complex pattern of support and resistance levels. The metal is currently trading between major horizontal support of around $28.7/toz and a major resistance of $29.8/toz. Beyond that, we note further potential resistance is offered by flattening 20-day and 50-day simple moving averages currently at $30.1/toz and $30.2/toz respectively and oblique resistance above $31.6 formed by the down trending 20 May, 29 May and 11 July highs. Lower minor support is indicated at $28.2/toz, formed by 13 June and 26 June lows and major horizontal support at $26.2/toz. 

Key Drivers in Ahead

Upcoming events for silver investors include Q2 Eurozone Flash GDP on 30 July, FOMC US rate decision and press conference on 31 July, July China Caixin Manufacturing PMI and July US Manufacturing PMI on 1 August, July China New Yuan Loans on 11 August, August Eurozone ZEW Economic Sentiment on 13 August, July China Industrial Production and Retail Sales on 15 August, August China NBS Manufacturing PMI on 31 August. 

Citations

1. https://www.etfcentral.com/etf-screener?seg=Metal%20ex-Gold 

2. https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value=2024