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Silver Uptrend Under Pressure

Stock MarketsJul 08, 2021 01:30PM ET
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Silver (SLV) has underperformed in recent months. It's surprising given the weakness in real interest rates. However, it could be an indication that the inflationary scenario is less likely given that some inflationary pressures are receding.It’s been a volatile week thus far for the markets, and while gold (GLD (NYSE:GLD)) has performed quite well, silver (SLV) has taken a backseat, down 2% for the week and unable to hold onto upside momentum. The good news is that the silver/gold ratio continues to remain in bullish alignment, with silver making a new high this year while gold has been unable to get back above $2,000/oz. However, we are going to want to see the silver bulls begin playing defense soon. This is because while pullbacks to oversold levels are a reason to be bullish like we saw two weeks ago, an inability to rally from oversold levels can suggest that a lower low is needed to capitulate the bulls. Let’s take a closer look below:


Silver’s fundamental backdrop continues to remain the strongest it’s been in decades, driven by demand from the automotive sector and associated infrastructure, continued demand from the solar industry, and 5G broadband cellular networks. This increase in industrial demand combined with what could be reduced investment in one of the largest silver-producing nations due to higher taxation (Peru) could translate to a deteriorated supply/demand picture over the coming years. This should place a strong bid under the silver price and is likely why the metal has performed so well in the face of gold’s weakness this year. The other factor, of course, is that silver tends to outperform gold if a new secular bull market has indeed begun, which the gold price is pointing to, given its new all-time high breakout last year. However, while this bodes well for the bigger picture, short-term momentum remains neutral, and the key to preventing it from turning negative is the bulls playing defense at $24.75/oz.

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Silver Uptrend Under Pressure

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