Silver price has staged a strong comeback in the past few weeks as it moved from a low of $28 earlier this month to the current $32. XAG has surged to its highest point since April 3. This article explores why silver and the iShares Silve ETF (SLV) are soaring and why they could retest their highest point this year.
China economy is thriving
The first main reason why silver price is set to keep rising is that the Chinese economy is doing well. Data released on Wednesday showed that the unemployment rate remains at 5.2%.
Data shows that the American economy expanded by 5.4% in the first quarter after growing by 5.1% in Q4. That increase was higher than the average estimate of 5.1%, meaning that it may blast past Beijing’s annual target of 5.0%.
China’s retail sales rose by 5.9% in March after growing by 4.2% a month earlier. This growth was also higher than the median estimate of 4.0%.
The country’s fixed asset investments rose by 4.2%, while the industrial production rose by 7.7% during the month.
There is a chance that the Chinese economy will continue to do well this year as Beijing unleashes more stimulus after the recent trade war.
China’s growth has defied expectations now that the country is in a trade war with the United States. Trump has placed a tariff of 145% against Chinese goods, while China has responded by adding a 125% tariff.
A strong Chinese economy is a bullish catalyst for silver price because it is the biggest buyer globally. As such, analysts expect that the industrial demand for silver will continue thriving in the coming weeks.
Silver to benefit from the gold surge
The other catalyst for silver and the iShares silver ETF (SLV) is that the price of gold has surged in the past few months. Gold has moved to a record high as inflows to the SPDR Gold ETF (GLD) have jumped.
It has done well as investors move to its safety since it is one of the most important safe haven asset in the world. Central banks, institutional, and retail investors have all rotated to gold in the past few months.
Therefore, the soaring gold price will benefit silver because the latter is seen as gold’s little cousin. Silver also has a dual mandate in terms of being an industrial and a precious metal.
US dollar index crash
The third reason why the silver price may surge is that the US dollar index has crashed in the past few months. It has dropped by almost 10% from its highest point this year.
Further, the dollar index has formed a death cross and an inverse cup and handle pattern, pointing to further declines over time.
Silver is priced in US dollar terms, meaning that its price will do well as the greenback plunges.
Silver price technical analysis
The other bullish case for silver price is that it has continued rising in the past few weeks. It has moved above the lower side of the ascending channel and the 50-day and 200-day Exponential Moving Averages (EMA), a sign that bulls are intact.
The Average Directional Index (ADX) has continued rising, a sign that the bullish momentum is continuing. Therefore, the price will keep rising as bulls target the year-to-date high of $34.5, followed by last year’s high of $34.87. A drop below the support at $31 will invalidate the bullish outlook.
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