After losing over 13% from the highs of early May, silver finally found support at 22.7 at the end of last week. By now, the price is back above 23 and is targeting a further rebound to 24. Although the news are negative on Wednesday morning, silver is steady and still trying to continue its upward trend.
China's PMI figures are disappointing for the second month in a row. While the slowdown in the service sector was modest, the decline in manufacturing activity worsened (PMI declined from 49.2 to 48.8 when it had been expected to rise). Since industry consumes almost half of all the silver in the world, this statistic could put serious pressure on the quotes of the precious metal. However, there was nothing like that.
Probably, the correction of silver prices was caused by a decrease in demand from China. The sharp rise in prices for silver led to a drop in import purchases in April by 42% on a monthly basis and by 35% on an annual basis. Asian buyers have a high sensitivity to commodity prices, so in the periods of active quotes growth they take a wait-and-see attitude on the market. If there is a recovery in demand at the end of May against the background of falling prices, silver will get a significant support.
At the same time, hedge funds, which actively participated in the May fall of prices for the majority of commodities, are gradually taking their profits. Although fund managers are not rushing to open long positions in precious metals, they have already begun to reduce the volume of short positions.
The technical view favors the continuation of silver price rebound upwards. The RSI and Stochastic indicators have reversed upward and are giving a buy signal. The 23-23.15 range looks interesting in terms of growing long positions. The closest target is 23.5, and then the level of 24.
The following trading strategy option can be suggested:
Buy silver in the 23-23.15 range. Take profit 1 – 23.5. Take profit 2 – 24. Stop loss – 22.7.
Also, traders may use Trailing stop instead of a fixed Stop loss at their convenience.