(Kitco News) - Concerns over China’s economy and shifting expectations surrounding the first rate cut of the Federal Reserve’s impending easing cycle are creating some solid selling pressure in the silver market, according to some analysts.
However, although silver is significantly underperforming in the precious metals sector, some analysts have said that the dip could be seen as a buying opportunity.
The selling in silver started overnight as Chinese investors started dumping the precious metal; some analysts have said that growing fears over China’s slowing economy could weigh on the metal’s industrial demand.
“Overnight news that China left its monetary policy unchanged and did not ease was seen as a negative for metals,” said Jim Wyckoff, senior technical analyst at Kitco.com. “China is a voracious commodity consumer and its listing economy has bearish demand implications for metals.”
At the same time, the grey metal fell to fresh session lows ahead of the North American trading session as a rate cut from the Federal Reserve in March is growing unlikely. According to the CME FedWatch Tool, markets see a less than 50% chance of a rate cut in March.
In a note published Monday, commodity analysts at TD Securities said they see silver caught in a tug-of-war between Eastern and Western markets.
“Our tracking of the top participants in Shanghai reveals some selling activity as domestic prices revisit a critical trend line that has supported prices since May 2023, whereas our advanced positioning analytics suggest that CTAs are already nearly 'max short,' which mitigates the odds of a follow-through lower in prices,” the analysts said.
TDS said silver could be sensitive to speculative selling as markets shift their interest rate expectations, paring back forecast rate cuts this year. However, the Canadian bank also sees a downside limit for silver.
“The technical break to new lows may have catalyzed stops, but we expect that prices may be nearing a local low nonetheless, as strengthening broad commodity demand expectations should kick off more supportive flows on the horizon while algos' dry-powder remains low,” the analysts said.
Silver has managed to hold critical support at $22 an ounce and is seeing a solid bounce. March silver futures last traded at $22.325 an ounce, down 1.70% on the day.
Phillip Streible, chief market strategist at Blue Line futures, noted that although silver is getting hit as both an industrial and monetary metal, the lower prices are attracting some bargain hunters.
Although silver is struggling, Streible also noted that the rest of the market is holding up relatively well. He added that there is a chance silver can recover from this recent selloff as gold holds critical support above $2,000 an ounce. February gold futures last traded at $2,025.20 an ounce, down 0.21% on the day.
While gold is holding its ground, the gold/silver ratio has rallied above 91 points, hitting its highest level since August 2022. The ratio currently means it now takes 91 ounces of silver to equal the value of one ounce of gold. The historical average for the ratio is between 50 and 60 points.
Christopher Lewis, market analyst at FX Empire, said that silver needs to push back above $22.50 an ounce.
“I do believe that the $22 level is an area that will continue to hold and you can see that short-term traders have already come back into the market looking to defend it. So, it could be a buying opportunity, but I would not get too big, though,” he said. “If we can break above the $22.50 level, then I suspect that silver has a real shot at going quite a bit higher to the 200-day EMA right around the $23.20 level.”
Analysts at TD Securities said that silver needs to get all the way back above $22.90 to attract new investor interest.
