Holidays in China will reduce demand for silver

The silver price, as well as the price of gold, continue correcting after the growth wave of the previous week. However, silver is in a more vulnerable position: if the quotations fall below the last local low of 23.2, the decline might accelerate. The broken upward trend also doesn’t add optimism for silver buyers.

The main reason behind a growth in prices of almost all metals is rising demand from China after lifting COVID-related restrictions. However, the Chinese factor, that has been pushing metal prices higher, will temporarily stop affecting the agenda since next week, and correctional pullback in prices might get stronger.

The fact is that China will be celebrating the Lunar New Year this weekend, and most of the country’s companies and citizens will have a week off after that. Moreover, many Chinese workers don’t intend to get back to work until February 6, as now they have a possibility to move freely both within the country and abroad for the first time in three years after cancelling the quarantine measures.

While China's enterprises will be fully or partially idle, demand for raw materials may decline, which will negatively affect the prices, including the price of silver. And it won’t be easy for the prices to get support from the Western economies, given the negative U.S. statistics published yesterday.

Now the level of 23.2 prevents the silver price from a deeper correction. Since October, each next price minimum was higher than the previous one, and this fact indicates a high stability of the upward trend. If this pattern is broken, a drop in the silver price might be much more notable than the current correction.

If there’s a breakdown below the level of 23.2, the next target of the “bears” will be 22.85. The Stochastic indicator has reversed and is still far from the oversold zone, thus strengthening the sell signal.

The following trading strategy could be offered:

Sell silver when the price falls below 23.2. Take profit – 22.85. Stop loss – 23.4.

Traders may also use Trailing stop instead of a fixed Stop loss at their convenience.