Silver Price Forecast for H2 of 2020: Will the Safe Haven Status Continue to Push Silver Higher?
Silver and Gold have been performing exceptionally well since the middle of March, even among the safe haven assets. However, silver is often more attractive than gold, because of the lower price per ounce, which has been fluctuating between $ 15 and $ 20 since 2014, while gold, which trades for around $ 1,800, is much more expensive. Silver is also a lot more volatile than gold or other safe havens, such as the JPY and the CHF, since it is a relatively small market, compared to the forex. It lost half its value after the coronavirus outbreak in the first two weeks of March, falling from around $ 20 to $ 11, but then it made a quick reversal and gained it all again in the following months. Now silver is still bullish, trading close to $ 20, and the silver price forecast shows that this metal is targeting the highs of 2016, at $ 20.70.
SILVER Price Now: $
Recent Changes in Silver Price
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As with most trading assets, the sentiment has been the main driver behind silver during recent years and that’s particularly true for risk assets, such as stock markets and safe havens like silver. The sentiment turned slightly positive in Q4 of 2019, as the US and China headed towards the Phase One trade deal, and this improved the risk sentiment across the globe, which is negative for safe havens. But, with the spread of COVID-19 and the lockdowns that followed, silver rallied higher, after a short-lived turmoil at the beginning of March. According to the Silver price prediction and analysis, the bullish trend will continue for months, as uncertainty about the coronavirus remains high worldwide, but the upside momentum has slowed to a normal pace, which is expected to continue as we head towards the 2020 US elections in November.
|Silver Forecast: Q4 2020||Silver Forecast: 1 Year||Silver Forecast: 3 Years|
|Price: $ 30-$ 35|
Price drivers: Coronavirus spread, Market sentiment, EU Covid recovery fund
|Price: $ 45-$ 50|
Price drivers: US elections, EU-UK trade deal, market sentiment
|Price: $ 20-$ 25|
Price drivers: Post US elections, Brexit, market sentiment, new global social order
Silver Price Prediction for the Next 5 Years
In 2019, and so far in 2020, we have seen a lot of activity in silver and other safe haven assets. The flip flop in risk sentiment in financial markets was a major factor of this volatility in 2019, due to the trade tariffs and the trade war between the US and China, while in 2020 the main driver has been the coronavirus pandemic and the economic impact resulting from the lockdowns. The impact of the lockdowns is still evident, and the coronavirus is still spreading, although the danger has subsided somewhat, as we head towards the US elections later this year. However, predictions for any asset should take a number of factors into account – we have listed them below for silver.
Market Sentiment – Coronavirus, the Main Factor Behind it
The risk sentiment in financial markets is the main driver behind safe haven assets. They tend to rally when the sentiment is negative and turn bearish when the sentiment is positive, which means that they are negatively correlated to risk assets, such as stock markets or commodity dollars. As shown in the monthly chart, silver surged when the world economy was in recession, following the 2008 global financial crisis. It climbed from $ 9 in 2009 to $ 50 by mid 2011. Then, it reversed down and remained bearish from then, as the global economy recovered. Now, with the outbreak of the coronavirus, the price has surged back up after, diving lower initially. So, the sentiment will still be one of the main drivers for silver in the remaining months of 2020, and the spread of the coronavirus will be one of the main drivers behind the sentiment. The majority of the countries have passed the peak of the curve, with new cases and deaths declining continuously. But, we are seeing spikes here and there, which is normal as the pandemic retreats, but which are also playing with the sentiment, since the virus is linked with economic contraction. For now, the coronavirus will drive the sentiment, and as we approach November, the US elections will take the spotlight increasingly. The sentiment from both events is negative, so I expect silver to remain on a bullish trend throughout 2020.
Politics – Will the Market Settle After the US Elections?
The 2020 US elections will be the next major event for risk sentiment in the markets, after the coronavirus. During the 2016 elections, we saw some increased volatility in the financial markets. This year the elections are proving to be even more important, as the battle between the warring parties continues to wage – Donald Trump on one side and the Democrats on the other, while the news coming from that should keep safe havens in demand>. There are some rumours that the coronavirus seems to be part of this, and the protests/riots in the US are also a form of political clash between the two sides. I expect the situation to heat up further as we approach the elections in the US, and probably for some time after the elections as well. The UK-EU trade deal will be another major event for risk sentiment until the end of this year. The Brexit deal, which was reached last year, offered some hope for a soft Brexit, but without a trade deal, we are going to have a hard Brexit. This will be a major risk-off switch for the sentiment, since it means economic competition between the EU and the UK in the long run, and possibly some clashes, so it is likely to have a lasting impact on silver. The recent comments don’t point to anything in particular, especially with the coronavirus situation, which has pushed the EU-UK trade negotiations into second place. If we don’t hear any solution for a trade deal between the two countries by the end of 2020, this will be another negative factor for the risk sentiment, which will keep silver bullish. In the meantime, the political noise will have an effect on sentiment, and therefore on silver too, but it will be short lived. But the EU coronavirus recovery fund, which has been discussed over the past few days, will also have an impact. Now, that the deal has been passed, the sentiment will turn positive for a week or so, which will keep the silver bullion market bullish, but it won’t be long-lasting.
Almost all commodities are quoted/traded in US dollars, so the correlation between them and the USD is also important for commodity prices. Commodity prices usually decline when the US dollar strengthens. In the chart below, we can see two occasions on which the value of the USD surged, sending the XAG/USD lower. Even though silver might have had nothing to do with the decline, the increase of the US dollar forces silver and other commodities to decline, since they are quoted in USD. It’s a similar scenario when the EUR/USD falls, because the USD is strengthening, not because traders have fallen out of love with the Euro. This usually takes place when markets suddenly turn to the USD, as a global reserve currency. From what we can see on the chart, this has already happened, once during the 2008 financial crisis, when traders piled on the USD during the first months of the crisis, fearing the worst. The second time took place in the first two weeks of March 2020, as the coronavirus pandemic hit Europe and the US, and traders turned into the USD again, fearing the end of the world. Both times, silver lost nearly half its value, as the USD surged higher. Silver should have rallied as a safe haven during such troubled times, but the initial shock in the financial markets, resulting from the global financial crisis and the coronavirus outbreak in Europe and the US, was much bigger than the investment fears. Traders were worried that the current global economic or social system would collapse, thus they rushed to buy the USD. Safe havens increased, but the increase in the USD was much larger, and the price of silver quoted in the USD declined. Then, after traders realized that the world wasn’t going to end, they turned to safe havens, hence the massive surge between 2009 and 2011, to $ 50 and the swift reversal in the second half of May 2020. There have been other occasions where silver has been prone to USD volatility, but these are the two most flagrant cases.
Small Market, High Volatility
The silver market has accounted for $ 63 billion as of April 2020, which is a tidy sum. But compared to the total financial market of $ 230 trillion, that seems like a tiny piece of the whole, since it is around 3,600 times smaller. But, not all the global value of silver is traded in financial markets. The technology industry accounts for about half of silver purchases, while a third goes for jewelry. So, just a fraction of the total silver reserves is available for trading, which makes the silver price forecast a little difficult. We know that there are big players with massive amounts of cash to invest in the financial markets, for example, hedge funds or pension funds. We have seen orders of tens of billions of dollars in forex at times. Such an order would affect the silver market enormously. As a result, the silver market is vulnerable to big players. That’s the reason why silver is very volatile – a lot more volatile than gold, which is not a bad thing, since volatility offers many trading opportunities. Remember that volatility is considered with regard to the value of the asset and not in terms of cents/dollars. After the 2008 financial crisis, silver gained more than 3 times its value and then lost it all again from 2011 until 2015. Even during 2020, we have seen a major decline, followed by an even bigger bullish reversal, so trading or investing in silver has its dangers as well.
Gold/Silver Price Ratio
The Gold/Silver ratio is basically the ratio between the price of gold and the price of silver. This indicator can be used to see the top and bottom extremes, because silver usually reverses when this indicator is at extremes. In the Silver/Gold price ratio chart below, we see that after peaking at the extreme, this indicator turned lower, while at the same time silver climbed higher. The last occasion on which this happened was during the COVID19 outbreak. It smashed all records, when it climbed around 40 points from late February until late March. Silver declined during that period, while from the time it reversed back down, from the last week of March until now, silver has been bullish. While this is not the best indicator to base your trading strategy for silver on, it is quite useful to show the trend and the times when the price is about to reverse. So, whoever trades silver should keep an eye on the XAU/XAG charts, but only on the larger time-frames, because there is a lot of noise in the smaller time-frame charts.
The XAG/XAU ratio is reversing down from extreme highs, while silver is climbing higher
Technical Analysis – Is Silver Going to Break the 6-Year Range?
Silver was on a steady bullish trend from the beginning of the 2000s. The demand for silver from the technology production industries increases steadily with the growth of the computing and smartphone industries, so everything was normal. But the financial market caught up with silver, sending it tumbling in late 2008, during the GFC. That didn’t last long though, and after the initial panic had settled, safe havens turned bullish and remained like that until 2011. Silver surged from around $ 15 to $ 50 by the middle of that year, but then the sentiment started improving in financial markets, after the global economy started recovering again. The XAG/USD fell to around the $13.70s by December 2014, which turned out to be a solid support level, since it held until March 2020, when the coronavirus outbreak sent it crashing lower. We saw a bounce during 2016, as a result of the Brexit vote in June and Donald Trump’s election in November that year, but the 50 SMA (yellow) and the 100 SMA (green) turned into resistance, and silver turned back down. Since then, silver has been trading inside this range, between $ 13.70 and $ 20.20. Moving averages have been doing a good job in providing resistance and keeping silver subdued, the 50 SMA (yellow) at first, which kept pushing the XAG/USD lower, then after it was broken in August last year, the 100 SMA (green) took its place. But, after the big rejection in February this year, silver returned with a vengeance, breaking the 100 SMA. Now, the next target will be the 150 SMA (gray), which I don’t think will be too much of an obstacle. The real obstacle will be the top of the range, just above $ 20. If that level goes, then the support/resistance zone between $ 25 and $ 26 will be the next target. With the pace of the recent months, after the big reversal in March, I think that silver will break above $ 20, then above the top of the range at $ 21.20 and thereafter, it will head for $ 25. After that, no one knows for sure.