Silver bounces back after Wednesday’s drop, but market remains challenging
(Kitco News) - Growing uncertainty surrounding silver's industrial demand is creating some volatility in the marketplace as precious metal sees its fourth month of consecutive losses; however, some analysts see the sharp slide as a buying opportunity.
Wednesday silver prices fell to their lowest level since July 2020, dropping below $22 an ounce. The price has managed to bounce off its recent lows. December silver last traded at $22.175 an ounce, up more than 3% on the day.
According to some analysts, along with rising bond yields and a stronger U.S. dollar, the silver market faces an additional hurdle as political infighting threatens the U.S. government's proposed $3.5 trillion spending package. The political posturing also came as the nation inched closer to running out to money and potentially igniting a global debt crisis.
Some of the geopolitical uncertainty has lifted as politicians were able to pass a stop-gap measure to raise the debt ceiling to avoid a shutdown.
"It felt like silver went on sale yesterday and when something is on sale, you have to buy it," said Phillip Streible, chief market strategist at Blue Line Futures.
Despite the near-term volatility, many analysts remain long-term bullish on silver as they expect the global green energy transition to drive the precious metal's industrial demand.
Morgan Lekstrom, president of Silver Hammer Mining (formerly known as Lakewood Exploration), said that the growing demand for clean energy and electric vehicles will make silver an essential commodity similar to copper.
"You can't have robust economic growth without copper. Silver is the same thing as technology advances," he said.
However, despite silver's long-term potential, some analysts note that the current environment will remain challenging.
Carsten Fritsch, precious metals analyst at Commerzbank, noted that the silver market has struggled to hold investors' attention and capital. He said that in the last week alone, silver-backed exchange-traded products have seen outflows of 160 tonnes.
"For as long as gold remains under pressure, silver is also likely to find it difficult to get out of the defensive," he said.
Ole Hansen, head of commodity strategy at Saxo Bank, also expects silver and gold to suffer.
"With stock markets bouncing back, thereby reducing diversification demand, and with 10-year real yields trading near at a three-month high, the short-term prospects for the gold and silver remains challenging," he said.