Silver Soars amid China’s Stimulus and Investment DemandSilver’s dual role in both investment and industry makes it highly sensitive to economic slowdowns but also well-positioned to thrive during periods of strong growth.
Silver prices have surged 30% year-to-date, driven by a fourth consecutive year of supply deficit, soaring demand from the expanding photovoltaic (PV) industry, and spillover momentum from gold, which has also risen about 30% this year.
However, unlike gold, silver remains well below its 2011 peak of USD 50/oz. With bullish sentiment building, the question remains—could silver catch up with gold’s blistering performance?
CHINA’s STIMULUS SUPPORTS SILVER
China’s broad stimulus announcement supports a bullish view on silver. The announcement of the massive stimulus package in China drove a 4% rally in silver prices. However, since then, further announcements have failed to drive a similar rally in silver.
The scale of the stimulus package was the largest since the pandemic. The stimulus package included a 50 basis point cut in the Reserve Ratio Requirement for Chinese banks which is expected to free up about 1 trillion yuan of liquidity. The stimulus package also included a 20 basis point cut to the 7-day repo rate, as well as a 30 basis point cut to the medium-term lending facility.
Over the past weekend, China announced additional broad stimulus measures, signalling a “significant increase” in debt. While the exact scale of new debt issuance remains uncertain, the scope and tone of the announcement reflect the government’s commitment to delivering sufficient monetary support to revive the struggling economy.
The stimulus package benefits silver through multiple channels. It bolsters industrial demand by driving increased activity from PV and electronics manufacturers. Additionally, improved consumer sentiment is likely to boost silver consumption in the form of jewellery and electronics.
RUSSIA TO INCLUDE SILVER IN PRECIOUS METALS STRATEGY
According to a report by InterFax , the Russian Finance Ministry is considering adding silver to its State Fund's precious metal holdings. Although the volume of potential acquisitions remains unclear, this move represents a new source of demand for silver.
PV PRODUCTION AND INSTALLATIONS REMAIN STRONG
PV production continues to thrive, boosting silver demand. Data from Ember Climate shows that global solar installations are 29% higher than last year. This growth has remained steady throughout the year, with several agencies, including the IEA and S&P Global, continuously raising their forecasts for annual installations in recent months.
Source: Ember Climate
The growth slowdown observed in China last April has since reversed, with solar additions rising sharply and projected to close the year 28% higher year-over-year. The easing of installation curbs in June played a key role in supporting this renewed growth.
Source: Ember Climate
MASSIVE ETF INFLOWS SINCE JULY
Silver ETFs have experienced significant inflows in recent months, indicating strong investor interest. Since July 1, cumulative flows into four U.S.-listed silver ETFs have reached USD 942 million. Notably, over USD 400 million flowed in following the Fed’s first rate cut in September. A lower interest rate environment encourages investment in non-yielding assets like silver and boosts industrial demand.
COMEX SILVER OPTIONS SIGNAL BULLISH SENTIMENT
Source: CME QuikStrike
COMEX Silver Options positioning suggests a strong bullish sentiment. Overall OI put/call ratio is at 0.52 suggesting nearly twice as many calls as puts. Options skew points to higher IV for calls relative to puts suggesting higher demand.
Moreover, bullish positioning has only increased since the disappointing announcement by the National Development and Reform Council (NDRC), China’s top economic planner, on 8/Oct with a large call buildup on the December expiry.
Source: CME QuikStrike
SEASONALITY POINTS TO BULLISH OCTOBER
Seasonality in silver prices since 2015 suggests a bullish outlook for October. 78% of the time, the month has returned positive returns for silver with an average increase of 1.7% and a low standard deviation of returns.
The outlook is even more bullish for December which has yielded a 4% gain on average.
HYPOTHETICAL TRADE SETUP
The fundamental outlook for silver remains bullish with support from China’s stimulus package, central bank interest, sustained PV demand, and ETF inflows.
Silver prices have remained in an uptrend year to date due to the convergence of these factors. However, prices have struggled to cross past USD 33/oz, with this level acting as a strong resistance. Prices have retraced sharply from near this level thrice this year.
The most recent reversal came after China’s stimulus announcement.
Investors can express a bullish view on Silver using CME Micro Silver futures. Each Micro Silver futures contract provides exposure to 1000 troy ounces (1/5th the size of a full silver futures contract) and requires margin of USD 2,300 as of 14/Oct.
A hypothetical trade setup using CME Micro Silver futures expiring in December offering a reward to risk ratio of 1.67x is described below:
Entry: 31.595
Target: 33.66
Stop Loss: 30.36
Profit at Target: USD 2,065 ( (33.66 – 31.595) x 1000)
Loss at Stop: USD 1,235 ( (30.36 – 31.595) x 1000)
Reward to risk: 1.67x
MARKET DATA
CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs tradingview.com/cme .
DISCLAIMER
This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services.
Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
Photovoltaic
Silver - Losing Its Shine?Silver commands value both as a precious metal and an industrial metal. Silver is often considered as a poor man's gold. According to the Silver Institute, Silver is used in solar cells (also known as photovoltaic cells which convert sunlight into electricity), electrical switches, and chemical-producing catalysts. Its unique properties make it nearly impossible to substitute and its uses span a wide range of applications. Every computer, handphone, cars, and appliance contains silver.
Near-term headwinds for photovoltaic manufacturing in China combined with a strong US Dollar are expected to weigh down on Silver prices in the near term. Our short-term outlook for silver is bearish. With a price rally over the past two weeks, we expect prices to retrace in the near term providing a compelling entry for a short position in Silver.
SILVER’S VALUE DRIVERS
Silver has been considered a precious metal for several centuries. However, in the modern economy, silver is valued as both a precious and an industrial metal. Silver’s industrial uses range from electronics, batteries, automobiles, dentistry, and photovoltaics among others. As such, nearly half of the annual worldwide demand for silver was from industrial uses over the past five years. In contrast, only 10%-15% of gold supply is used for industrial purposes.
SILVER’S INDUSTRIAL DEMAND
Photovoltaic demand particularly has been a major factor in recent years with the growing proliferation of solar power. Silver consumption in solar panel production grew 13% in 2021 and accounted for 22% of total industrial usage as per the Silver Institute.
China is the global leader in solar-panel manufacturing accounting for 74% of the module capacity and 85% of the cell capacity in the world according to the IEA. With manufacturing in China remaining muted in the short term due to COVID surge and related lockdowns, photovoltaic production demand over the short term is unlikely to influence Silver prices.
SILVER AS STORE OF VALUE
Silver has underperformed relative to Gold and Platinum this year. Both Silver and Platinum have outperformed over the past month and 3-month periods. Precious metals investments face strong headwinds as investors find relative safety in elevated US Treasury Yields. Although expectations are for the Federal Reserve to ease its rate hiking cycle going forward, that policy pivot remains unlikely anytime soon.
SILVER SUPPLY AND DEMAND BACKDROP
Fuelled by Silver’s price rally in 2020, supply rebounded in 2021 increasing 5% YoY. However, silver supply plunged into a deficit in 2021. This deficit was expected to widen further this year according to the Silver Institute as demand rises (+5%/1030.3 million ounces) was expected to outpace supply (+3%/1,101.8 million ounces).
However, macro backdrop of events this year, from rising inflation, COVID situation in China, to geopolitics, has adversely impacted the demand from the electronics industry leading to excess inventory. Additionally, reduced manufacturing production in China will also lead to lower demand for photovoltaic production. Falling demand, especially in the short term, will likely result in supply outpacing demand.
SILVER TECHNICAL SIGNALS & A PEEK INTO SILVER COT REPORTS
Silver prices rallied over the past two weeks breaching a resistance band ($20.5-$21.32) that has held since July.
Following this rally, RSI moved into overbought territory at 72.18. Additionally, on the 200d and 10d moving average (MA) we see a golden crossover forming. However, if we take a longer short-term MA (20d) to look at the larger uptrend that began on 14th October, the Golden crossover is far from likely to occur.
Moreover, the rally faced resistance at the 200d MA reaching a high of $22.38 which is 3.99% higher than the 200d MA on the day. The highest close was just 2.8% above the moving average on the day. Both these levels are within 2x standard deviation of the Implied Volatility of At the Money Options (31.01%) as seen on CME's QuikVol.
Nevertheless, the current rally does deliver promise as it confidently breached R1 of the pivot point indicator. This level of $20.95 now indicates a support level for the rally.
CME’s Commitment of Traders (COT) tools shows that despite the price increase over the past month, producers have increased the number of short positions from 20.7% to 24.3% on November 15th.
Managed money shorts have decreased from 32.4% to 17.7% while managed money longs have increased marginally from 26.7% to 28.2%.
SHORT SILVER FUTURES TRADE SETUP
CME Micro Silver Futures provide exposure to 1,000 Troy Ounces of Silver with a maintenance margin of $1,700 as of November 22nd. This provides a cost-effective way to get exposure to movements in Silver’s price.
Establishing a short position with an entry price at $21.18/oz with a potential target at $19.88/oz (1x standard deviation of IV of ATM option above the pivot point) by Dec 16th (two days after the next Fed meeting) could provide exposure to a short-term correction in the price of silver yielding 76.47% returns or $1,300. A stop loss at 1x standard deviation of IV of ATM option above 200d MA at $21.88 would protect against an unexpected rally resulting in loss of $700 or -41.18% providing a reward to risk ratio of 1.86. Alternatively, holding the position until the pivot point would lead to 98.82% returns or $1,680.
As the correction is expected to be in the short-term, December futures could provide superior liquidity.
CME’s full-size Silver futures provide exposure to 5,000 Troy Ounces of Silver with a maintenance margin of $8,500 and improved liquidity in case of larger positions.
MARKET DATA
CME Real-time Market Data help identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
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SUNW Expected to Beat Earnings Estimates on March 11Sunworks, SUNW, is expected to post quarterly loss of $0.21 per share, a year-over-year change of +25%, while revenues are expected to be $29.5 million, up 243.8% from the last year quarter.
Sunworks provides photovoltaic based power systems for the agricultural, commercial, industrial, public works, and residential markets in California, Massachusetts, Nevada, Oregon, New Jersey, and Hawaii.
My price targets for SUNW in this energy booming economy are $6.40 and $8.05.
Looking forward to read your opinion about it.
channel breakout and strong support I had already created a setup for First Solar on 29.11.2021. This was stopped out with a loss of approx. 7%.
Now a new buying opportunity arises through chart analysis.
On February 14, the price formed an Inverted hammer (not perfect), which often appears at the end of a downtrend.
Yesterday's price formed a Hammercandle which could indicate rising prices.
First Solar is just about to leave a downtrend channel. Breakouts from such long channels (over 100 days) or ranges can result in very strong price movements.
The share has formed strong support at $68.
Therefore, there is much to be said for a rise in the price, and good risk management is also given, as the stop loss (SL) can be set below the support zone at approx.63 $.
However, I usually only set the stop loss in my mind. For me, the closing price in daily is decisive. If this closing price is below this zone, I close the trading position manually. It often happens, that the price triggers the SL intraday, only to rise again afterward. This is avoided in this way.
The price has potential up to $91 (take profit 1) or even up to $109 (take profit 2). This corresponds to a ratio of 2 (TP 1) and 3.9 (TP 2). The loss would only amount to approx. 13%. The profit, however, would be 27% or 50%. Therefore, I see a good buying opportunity.
What do you think?
I am very grateful for feedback :)
Deutsch
Am 29.11.2021 hatte ich bereits ein Setup für First Solar erstellt. Dieser wurde ausgestoppt mit ca. 7 % Verlust.
Nun ergibt sich eine neue Kaufgelegenheit durch Chartanalyse.
Am 14. Februar bildete der Kurs einen Inverted Hammer (nicht perfekt), der oft am Ende eines Abwärtstrends auftaucht.
Der gestrige Kurs bildete eine Hammercandle, welcher steigende Kurse anzeigen könnte.
First Solar ist gerade dabei einen Abwärtstrendkanal zu verlassen. Ausbrüche aus solchen langen Kanälen (über 100 Tage) oder Ranges können sehr starke Kursbewegungen zur Folge haben.
Die Aktie hat bei 68 $ einen starken Support gebildet.
Daher spricht viel für einen Anstieg des Kurses und ein gutes Risikomanagement ist ebenfalls gegeben, da der Stopp Loss (SL) unter die Supportzone bei ca. 63 $ gesetzt werden kann. Den Stop Loss setze ich jedoch meistens nur im Gedächtnis. Für mich ist der Schlusskurs im Daily ausschlaggebend. Ist dieser Schlusskurs unter dieser Zone, schließe ich den Trade manuell. Es kommt oft vor, dass der Kurs innerhalb des Tages den SL triggert, um danach wieder zu steigen. Dies wird so vermieden.
Der Kurs hat Potenzial bis 91 $ (Gewinnmitnahme 1), bzw. sogar bis 109 $ (Gewinnmitnahme 2).
Dies entspricht einer Ratio von 2 (TP 1) bzw. 3.9 (TP 2). Der Verlust würde nur ca. 13 % betragen. Der Gewinn jedoch bei 27 % bzw. 50 %. Daher ergibt sich für mich eine gute Kaufgelegenheit.
Was denkst du?
Für Feedback bin ich sehr dankbar :)