The silver market continues to be sensitive to gold prices. However, the volatility in the market shows what kind of potential the grey metal has when gold starts to rebound.
As contract renewals move into the new month, the gold market will once again break $2,000 an ounce. But silver outperformed gold, and the price of silver recovered to $25 an ounce.
Some analysts believe both gold and silver are benefiting from the growing perception that the Fed has ended its tightening cycle. After raising rates by 25 basis points last week, Fed Chairman Jerome Powell said the central bank is keeping its options open and will largely depend on economic data ahead of a September decision.
Economists and analysts said the weaker inflation data gave the Fed room to halt its tightening cycle. According to CME Group's Fed Watch tool, the market sees a 79.5 percent chance that the Fed will leave rates unchanged in September.
James Hyerczyk, technical analyst at ForexEmpire.com, said: "Market players think the Fed is at or near the end of the line on interest rates, especially with the key U.S. inflation report showing the pace of deflation picking up. This positive sentiment has had a positive impact on silver prices, which have found support near $22.66- $22.81. It is important to note that the market tends to experience price volatility and erratic returns during this time of year."
Hyerczyk noted that silver is on track for its best month since March.
Analysts noted that with the shift in U.S. monetary policy, strong economic activity is also supporting silver prices, and industrial demand for silver continues to be driven by the global green energy transition.
Precious metals analysts at Heraeus said industrial demand for silver could be strong as the U.S. Department of Energy plans to spend $45 million to develop manufacturing in the domestic solar industry.
Analysts at Heraeus said in their latest research note: "The solar industry has been the fastest growing silver demand sector (13% CAGR since 2014) and is expected to reach a record 161 million ounces this year, equivalent to 14% of total demand." In 2022, solar installed capacity in the US and Europe increased by 18.5% and 19.8%, respectively."
Manish Jaradi, market strategist at DailyFX.com, said that while silver is off to a good start in the new week, he would like to see a break above $26.15 to provide a clearer bullish trend. He added that a break below $22.10 for silver would highlight a new bearish trend in the market.
