The past year has been exceptional for precious metals, with both gold and silver delivering stellar returns. Silver, in particular, has shone brightly, posting an impressive 30% gain, making it one of the top-performing commodities of 2024.
Tracking Gold’s Momentum
While gold’s rise has been buoyed by robust central bank demand, silver has followed closely despite its relatively smaller role in official reserves. Over the past year, silver prices have surged by 31.2%, just a fraction behind gold’s 31.7% increase.
Silver’s ascent hasn’t been without challenges. In recent months, a more hawkish tone from the US Federal Reserve (Fed), coupled with a stronger dollar and rising Treasury yields, has pulled silver prices back from the decade-high levels reached in October. However, this pullback has yet to disrupt the metal’s broader uptrend, with higher lows still intact.
Fed Policies and Market Sentiment
Positive US economic data has prompted markets to recalibrate expectations for Fed rate cuts. Initially, two cuts were anticipated in 2024, but consensus now leans towards a single reduction. This less dovish stance, along with inflation concerns and potential policy shifts under a possible Trump 2.0 administration, has weighed on silver and other non-yielding assets.
Despite the Fed’s hawkish rhetoric, much of this outlook may already be priced into the markets. For example, on January 6, an unverified report from The Washington Post suggested that Trump might scale back tariffs, leading to a brief dip in the US dollar. While this was later denied, it highlighted the potential for surprises to influence market sentiment.
If US economic data softens or anticipated policies fail to materialise, the dollar could weaken, and Treasury yields may retreat, offering a supportive environment for silver prices.
Supply and Demand Dynamics
Silver’s long-term outlook remains underpinned by favourable supply-demand fundamentals. According to data from Metals Focus, global silver supply has stagnated, while demand has steadily increased in recent years. These evolving dynamics, while gradual, could provide a strong foundation for future price growth.
Modest Positioning Suggests Room for Growth
Despite silver’s recent gains, money manager positioning and silver exchange-traded fund (ETF) holdings remain relatively modest. Data from the Commodity Futures Trading Commission (CFTC) shows that speculative positions in silver are still below their 10-year average. Meanwhile, holdings in the iShares Silver Trust ETF remain significantly below their 2022 peak, suggesting potential for further upside if the right catalysts emerge.
Technical Analysis: Testing Resistance Levels
On the technical side, silver prices are currently trading within a descending wedge pattern. The key resistance level sits at $31, and a breakout above this could signal renewed buying momentum, potentially paving the way for a retest of $32.55. This level coincides with the upper boundary of the Ichimoku Cloud resistance, making it a critical milestone.
For now, market sentiment appears cautiously optimistic. Buyers are attempting to invalidate a bearish head-and-shoulders pattern observed in December. Maintaining support above the psychological $30 level will be crucial for sustaining the upward momentum.
Final Thoughts
Silver’s remarkable performance in 2024 has solidified its place as a standout in the commodities space. While short-term fluctuations driven by Fed policy and broader market conditions may impact prices, the metal’s favourable long-term fundamentals and technical setup suggest a promising outlook. For investors, silver continues to offer an intriguing mix of volatility and opportunity.
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