In the year 2023, the silver market witnessed a lateral movement within the $20-$26 range, lacking a distinct trend due to rising Treasury yields until October. Notably, silver faced resistance at the $26.00 level, proving to be a crucial hurdle. Multiple attempts to breach this resistance were followed by sell-offs, underscoring the significance of the $26.00 level.
Gold/Silver Ratio Dynamics:
The gold/silver ratio experienced notable fluctuations throughout the year, providing trading opportunities but lacking a strong trend. The key resistance for the gold/silver ratio stands at 88.00, and a breach above this level could propel it toward 92.00, signifying bearishness for silver. On the downside, the ratio finds robust support near 78.50, potentially offering upside momentum if approached.
Economic Outlook and Monetary Policy:
At the onset of 2023, recession concerns were prevalent, especially in the wake of global economic uncertainties. However, these fears did not materialize, and the likelihood of central banks orchestrating a soft landing increased. While Europe faced challenges due to its manufacturing sector’s weakness, a notable factor was the loss of cheap energy from Russia, leading to increased energy costs. The International Monetary Fund (IMF) projected a slight global growth slowdown, from 3.0% in 2023 to 2.9% in 2024.
The Federal Reserve (Fed) is anticipated to embark on a rate-cutting cycle in March 2024, according to the FedWatch Tool. Lower interest rates are traditionally bullish for precious metals, as they offer an alternative to assets that provide no interest, such as silver. Other central banks, including the European Central Bank (ECB), may also consider rate cuts in response to slowing inflation.
Geopolitical Influences:
Geopolitically, 2024 is expected to be shaped by ongoing conflicts and the U.S. presidential election. Precious metals, including silver, typically serve as safe-haven assets during geopolitical uncertainties. The prolonged nature of conflicts has led non-Western countries to explore diversification of reserves, indirectly supporting silver prices.
Technological and Industrial Trends:
Silver mine production has been declining since 2016, attributed to the inefficiency of silver miners. Many miners faced challenges due to unsuccessful large projects funded through debt. Consequently, there is a lack of enthusiasm for financing silver mines, impacting production growth. Recycling has helped offset the decline in mine production, contributing to market balance.
Demand for silver has been on an upward trajectory since 2016, reaching an estimated 1,167 million ounces in 2023. Industrial demand has been a consistent driver, while physical investment and jewelry demand exhibited volatility. The decline in photography demand, owing to the shift to digital formats, is noteworthy. Despite fluctuations, the demand for silver is projected to increase in 2024 and beyond, supported by a growing world economy.
Market Risks and Volatility:
The gold/silver ratio remains a key variable influencing silver markets. Fluctuations in this ratio significantly impact silver’s performance. Although the general trend in the gold/silver ratio since 2011 has been bullish, the historical range suggests that silver has room for upside potential in the long term.
While silver is generally not highly volatile, it can experience rapid movements during strong catalysts. The technical analysis indicates a bullish sign as silver spent the year within a triangle, with each pullback bought at higher levels. A move above the $26.00 level is crucial for sustainable upside momentum, with the Relative Strength Index (RSI) providing room for potential momentum gains.
Conclusion and Forecast:
As the Fed gears up for rate cuts, precious metals, including silver, are poised to witness solid demand in 2024. Breaking the resistance at $26.00 may propel silver toward the $30.00 level. While silver’s RSI currently resides in moderate territory, past instances highlight its capacity to surge above the 80 level, indicating the potential for strong momentum. Traders should remain vigilant for catalysts that may trigger swift movements in the silver market.
