Chart Of The Day: Silver Fundamentals, Technicals Sending Mixed Signals

 | Feb 09, 2022 15:20

During February, silver has been recouping some of the losses it experienced during January, when precious metals along with a broader array of assets all dropped after the US Federal Reserve suddenly took a more hawkish tilt, announcing it was raising interest rates sooner than some investors expected.

This tightening will reduce liquidity in the money supply, thereby increasing dollar demand. And rising interest rates will provide higher payouts for dollar holders.

A positive trajectory for the greenback is expected to come at the expense of precious metals, which provide no yield. The negative correlation between the dollar and silver has been obvious since the near-20% drop for the commodity after its May highs—the same period during which the dollar bottomed as silver peaked; the USD is now 6.6% higher.

Of course, markets aren't really as simple as that, with one asset rising as a mirror asset falls. Silver is also driven by the economic cycle, which is currently accelerating.

Moreover, given the myriad industrial applications for the white metal—including as an alloy for brazing and soldering, as a component of photovoltaic and conventional batteries and as an element in semiconductor manufacturing—the price of silver is also propelled by an array of business concerns.

As such, there's no magic formula for how to determine which way the commodity will go next. The supply and demand trajectory on the technical chart might help.