Silver prices are starting the new week with a sharp drop of almost 2%. A risk of a downside break of the important support level at 22.5 is rising. If by the end of Monday's trading session the drawdown cannot be bought back, the technical picture on the daily silver chart will significantly deteriorate. Further stopping of the falling white metal price will be unlikely up to the range of 21.8-21.9.
Sentiment in the silver market worsened on Friday, when the University of Michigan published its consumer sentiment indices. The assessment of both current and future situations in the U.S. economy turned out to be significantly better than analysts expected. This was another reason for the lowering of expectations about the Fed's key rate cut in March. Due to the quiet period before the meeting on January 31, U.S. officials will not make any speeches, and no support for the precious metals market should be expected from their side.
Meanwhile, Heraeus analysts warn of a potential downside risk to silver demand in 2024. This is caused by the extremely fast pace of solar energy development. Last year, this sector set a record of 190 million ounces of silver consumption. However, this pace of development is unlikely to be maintained in the future, especially in China's case.
According to Heraeus experts, in 2023 China updated its historical high for newly installed solar panel capacity. As a result, China may face a lack of necessary areas for further expansion of solar power plants. Installing panels on rooftops may alleviate the problem, but without large-scale solar farms the renewable energy industry will grow too slowly. Consequently, forecasts of a rapid increase in silver demand may not materialize.
Today's setting of the price low over 2 months means further transfer of the initiative in the silver market to the sellers. If the prices fail to quickly return to 22.5, the next downside targets of 21.8-21.9 will become relevant.
Consider the following trading strategy:
Sell silver at the current price. Take profit – 21.8. Stop loss – 22.5.
Traders may also use a Trailing stop instead of a fixed Stop loss at their discretion