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What's Next For Silver Prices

silver prices analysis market

Volatile Few Months for Silver Prices

It has been a volatile few months for the silver price. After a solid rally in April and May, prices have pulled back thus far in June. So is this just a minor correction or the start of a significant pullback? We might be better able to answer that question by the end of this week.

 

Important Events Impacting Silver Prices

Why is this week so important? Let's start with the calendar of events. Wednesday brings the latest update on inflation at the retail level in the U.S. (CPI), followed by the conclusion of the June FOMC meeting, Powell's press conference, and quarterly Summary of Economic Projections. The next day, we get the latest update on inflation at the wholesale level (PPI). How these headlines affect the bond market and dollar index will have a major impact on COMEX silver prices.

 

Chinese Market Impact on Silver Prices

But it's more than just that. The Chinese markets were closed on Monday, June 10, for observance of their Dragon Boat holiday. Once they reopen on Tuesday, June 11, how will prices respond to the beating they've taken since trading concluded early last Friday? We saw a massive selloff in the "paper" markets of London and New York, with COMEX silver trading volume last Friday nearing 100% of the total global annual mine supply.

total volume chart 1

 

Understanding COMEX Silver Contracts

If you're unclear of the math, each COMEX silver contract is alleged to represent 5,000 ounces of silver. As such, the total volume last Friday of 169,885 contracts equates to 849,425,000 ounces trading hands. As you can see below, The Silver Institute estimated total global mine supply for 2022 and 2023 to be around 830,000,000 ounces.

prices

(As an aside, if the information above makes you think that the COMEX price, derived by trading derivatives which are only partially backed by physical metal is a scam, you might be onto something.)

So when the physical metal-based Chinese markets reopen on Tuesday, how will they respond? After the selloff on Tuesday last week in New York, Shanghai responded with a lower price the next day. However, by Thursday, the price was right back up to where it began the week. So will a similar bounce be seen this week? Maybe.

Shanghai vs. NY/London Price Premium

But how far can the premium of the Shanghai price versus the NY/London price be stretched? As you can see below, it's already near its historical maximum. Some claim that an arbitrage trade will close this gap, but making that trade is far more difficult than assumed, so don't expect this premium to evaporate unless Chinese demand wanes.

total volume chart 1

Technical Analysis and Support Levels

The price action last Friday drove COMEX gold, COMEX copper, and the GDX below their respective 50-day moving averages.

total volume chart 1

 

But also note that $29 proved to be strong resistance back in April and May. That level should now provide decent support on this pullback. You can see the importance of $29 and the long-term breakout on the chart below. That said, you can plainly see that the $28 level will also provide strong support, should $29 temporarily give way.

total volume chart 1

 

Market Volatility and Investment Opportunity

So sit back, grab some popcorn, and enjoy the show this week. Expect a lot of volatility as the markets digest the data and everything that Powell has to say on Wednesday. This current pullback and consolidation phase for the silver price may continue a while longer, and if so, it provides a decent opportunity to add to your stack of physical metal before the price rally resumes later this summer.

Don’t miss a golden opportunity.

Now that you’ve gained a deeper understanding about gold, it’s time to browse our selection of gold bars, coins, or exclusive Sprott Gold wafers.

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About the Author

Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities.

Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.

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