Silver price is down for the second straight day, reversing some of the gains that were made a month ago when it rallied by more than 24%. Similarly, gold, its richer cousin, has also declined in the past two days.
Silver price falls as DXY weakens
Silver price (XAGUSD) has declined at a time when the US dollar has been falling. The dollar index (DXY), which measures the performance of the greenback against key currencies has dropped by more than 2% in the past seven days. This is surprising because silver and gold price tends to soar when the USD falls.
The current decline is also surprising because it is coming at a time when the global economy is improving. Manufacturing and services PMIs data released this week showed that most countries, including China and the US did better in May than they did in April.
As an industrial metal, silver ought to be doing well, according to convectional knowledge. That is because it will see more demand as more people go to shop. However, the challenge is that demand for silverware in key markets will take time to recover even as miners go back to work. For example, in India, demand is not expected to return any time soon.
Perhaps, the current decline is because most investors who bought it are now exiting as they take profit. Another possible reason for the decline is that traders are exiting because the price neared a key resistance level as I will explain below.
On the daily chart, silver price had a great May, soaring from a low of $14.5 to a high of $$18.35. The price moved above the important 78.2% Fibonacci retracement level. Using the Elliot Wave, we see that silver price has completed the first, second, and third waves. This means that the price may continue to decline as bears attempt to retest the 78.2% retracement at $17.3580. If this happens, the price will then resume the upward trend and possibly test this year’s high of $19.00.
On the flip side, a move above Friday’s high of $18.3893 will invalidate this prediction. This is because it will send a signal that there are more buyers in the market, who will be keen to push the prices higher.