Why is Silver Breaking Multi-Year Price Records?

Silver is the second most popular precious metal among bullion traders. The white metal has been shining bright for centuries as a store for value, much like gold, reaching an 11-year high of $32.52 in May 2024. XAG/USD surged 23.33% and gained 17.89% in the 12 months to July 2024. And the good news doesn’t stop here. Silver is expected to outperform gold in 2024. The positive market sentiment has further pushed the demand for silver.

Here’s a look at the factors fuelling the demand and how commodity traders can make the most of the opportunities in silver trading.

Factors Pushing the Demand for Silver

Silver is used for a multitude of purposes, which are supporting its demand:

Industrial Fabrication

Silver is one of the most used metals for industrial fabrication. These include electronics, automotive industries and photovoltaic (PV) cells for solar panels. The global industrial demand for XAG is forecast to see an uptick of 4% in 2024. The growth of the solar energy sector is expected to lift the demand for N-type solar cells, which primarily use silver. The expansion of the electronic vehicle (EV) sector may also push the demand for the white metal for battery and charging needs.

Jewellery

With the gold rally, the jewellery market is shifting towards silver. This underpins the growth of silver consumption among top jewellery consumers, including India. The country that loves gold is expected to drive 9% growth in the global silverware fabrication market in 2024.

Supply Changes

The global silver recycling volume is forecast to recede by 3%, hitting multi-year lows. This is due to reduced silver jewellery, silverware and photographic waste. Further, silver production, as a by-product from the mines of other base metals, is also forecasted to affect supply, creating a deficit in the market. However, the recycling supply deficit is expected to be overshadowed by the uptake in mining production. Overall changes in the supply chain may further support the silver price rally.

US Interest Rate Decisions

Silver gained 2% after the US employment report for June 2024. Further, Federal Reserve chair Jerome Powell announced that the central bank was now more inclined to cut back key repo rates.  Traders’ expectations of monetary easing by September 2024 reached 100%, weighing on the US dollar. Known as a low-cost safe haven, silver registered gains. Going ahead, this sentiment is set to push the precious metal market further, lending support to the ongoing silver rally.

Advantages of Trading Silver in 2024

There are several reasons for exploring the opportunities presented by the white metal in the commodities market:

• Diversification: Being a safe haven, silver is a great option to diversify your portfolio against the expected pullback in the US dollar, following the beginning of Fed rate cuts. Further, silver is loosely correlated or uncorrelated with most markets, presenting a unique hedging opportunity.
• Lower Entry Barrier: Being cheaper than gold, silver presents a unique opportunity to enter commodity trading with significantly lower capital requirements.
• Greater Volatility: Silver is more volatile than gold, presenting more opportunities per day trading session.
• High Liquidity: Due to the popularity of silver for industrial use, XAG/USD has high liquidity. This helps prevent major price distortions and order fulfilment delays. Fast order filling at equitable prices enhances commodity trading experiences.

Tips to Trade Silver

Solid demand and supply-side constraints are expected to support the silver rally. Simultaneously, geopolitical uncertainties and US interest rate decisions will continue to add volatility to the white metal’s price. Consequently, analysts at JP Morgan and Citigroup have forecasted that XAG/USD could hit the $30 mark in 2024. This is set to create a wealth of opportunities for commodity traders. Add the following to your market analysis arsenal to make the most of such opportunities:

Silver-to-Gold Ratio

In addition to technical indicators and news updates, experienced commodity traders use the silver-to-gold ratio to speculate on movements in the silver market. It refers to the amount of silver required to buy 1 oz of gold. The silver-to-gold ratio is an important parameter in making silver trading decisions. Experts use this to determine whether silver is under- or over-valued in comparison to gold. This is because silver tends to follow gold. The expectation for the white metal to sustain its rally is higher after gold’s impressive performance in 2023.

Observe Price Action

Technical analysis is a key tool to make commodity trading decisions. The pattern from 1980 to 2024 indicates a bullish breakout for the white metal. Silver prices are closing in, forming a cup-and-handle pattern, a strong indicator of a bullish breakout. However, traders must stay cautious of fake signals as the market tests the key resistance level ($31, in the case of silver), multiple times before a breakout.

CFD Trading to Capture Opportunities

Trading silver via CFDs allows you to optimise returns from both rising and falling markets. CFDs are derivative instruments that help you trade with margin, increasing your purchasing power with a small amount of capital. This increases your profit potential but also magnifies the loss potential. Therefore, risk management is crucial while trading silver using CFDs.

To Sum Up

• Silver price action broke multiple records from January to July 2024.
• XAG/USD is forecasted to sustain its rally till the end of 2024.
• High volatility and liquidity present abundant opportunities for commodity trading.
• Technical analysis and the silver-to-gold ratio are critical factors in helping commodity traders make informed decisions.
• CFD trading allows traders to take advantage of uptrends and downtrends.

Disclaimer

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