Can Silver Break-Out? Since reaching recent all-time highs, gold has outpaced silver, and despite a favorable risk asset environment, recent price action in silver has yet to validate a decisive upward move.
It's crucial to recognize that silver holds significant industrial applications, establishing a notable correlation with metals like copper and zinc. As these metals are considered forward-looking due to their integral role in various industries, their increased demand is often indicative of growing economic activity, positioning them as leading indicators.
Economic Headwinds and Fundamental Challenges:
The recent revision of the Atlanta Fed GDPNow estimates for Q4, were lowered from 1.8% to 1.2%, reflecting weaker economic growth expectations. Concurrently, weaknesses in the labor market have shifted interest rate expectations, now pricing in a potential cut as early as March 2024.
While easier financial conditions typically boost silver prices as investors seek risk assets, concerns arise regarding demand in the industrial sector, heavily influenced by the business cycle.
Can We Break Out?
Silver, with characteristics of both a precious and industrial metal, requires more robust fundamentals than gold. Upcoming unemployment rate and Nonfarm payrolls reports will offer insights into the labor market, with further weakness likely leading to lower rates and supporting silver. However, industrial sector strength in China and the U.S. is equally imperative.
The Technical Picture:
From a technical standpoint, the 21-Day EMA serves as a near-term support, while 26.25-26.75 presents substantial overhead resistance. A breakthrough and close above this level are essential to retest the $28 mark.
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