Sentiment was weak in the commodities market following the rout in the energy market that started yesterday. The Bloomberg Commodities Index (BCOM), which measures the strength of different commodities dropped by more than 3%.
Precious metals like silver, gold, platinum, and palladium declined by more than 5%, 3%, 10% and 15% respectively. Agricultural commodities like corn, soybeans, and wheat declined as well.
Perhaps, investors are moving from commodities, which are now being viewed as being relatively risky.
Another thing at play is that industrial production in most countries is declining. As demand declines, the price of copper falls because unlike gold, silver is more of an industrial metal. Just last week, data from the US showed that industrial production in March declined to the lowest level since 1940s. Another data showed that retail sales in the US dropped by 8.7% in March.
A combination of weak industrial production and weak retail sales is disastrous for silver. Worse, other important markets for the metal like India and Europe are going through worse.
Only a tiny percentage of silver that is mined is used for investment purposes. Indeed, the biggest silver ETF has about $5 billion in assets compared with gold, whose ETF has more than $60 billion in assets.
Silver is usually quoted in dollars. Therefore, the metal’s price tends to decline when the value of the dollar falls. Today, the dollar index rose by more than 50 basis points as other currencies declined. For example, the dollar rose by more than 30 basis points against the euro and more than 50 basis points against the Canadian dollar.
Looking at the four-hour chart, we see that the silver price has been rising since it bottomed at $11.60 on March 18. The price reached a high of 15.82, which is between the 50% and 61.8% Fibonacci Retracement level on Thursday last week.
As the price was rising, it was forming an equidistance channel. Today, the price moved below this channel and tested the 38.6% Fibonacci Retracement level.
I expect the price to maintain a bearish momentum if it moves below the 38.6% retracement level at 14.47. If this happens, the price will likely head to 13.40, which is the 23.6% retracement level.