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Silver declines again
25.05.2022

Silver declines by 1.40% throughout the day, with the decline accelerating as we approach the open of the US trading session. The price movement has almost fully lost yesterday’s price gains. Traders seem to be treading cautiously as we approach the FOMC report this evening. The market is looking towards the US Dollar, interest rates, and other factors to determine how the price is likely to develop.

How the US Dollar and interest rates are influencing Silver

Over the past 2 weeks, silver has been supported by an increase in demand and a struggling US Dollar. The price of silver has increased by almost 7.5%, however, traders should note that this is less significant compared to the 20% decline which formed on the 19th of April. Even with today’s decline, the price movement is still within a traditional upward trend forming higher highs and lows. Though traders should be cautious if the decline strengthens, in which case the scenario changes.

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Silver has come under pressure due to its inverse correlation with the US Dollar. As the US Dollar has gained and interest rates have strongly increased, silver has struggled. This is mainly due to its correlation and the fact that investors are able to benefit from other strong performing safe-haven assets such as Dollar Accounts and Treasury Bills.

The market will be looking at the performance of the US Dollar when trading silver. The asset may struggle to maintain its value if the US Dollar continues to climb. However, the struggling stock market which has significantly declined may prompt investors to turn to other assets such as silver.

Demand for Silver

The demand for gold and silver is gradually increasing according to experts, even if this cannot be seen in today’s price movement. Last week, the head of the European Commission announced large-scale changes in the field of solar energy production. In the Eurozone, it is planned to increase production by 10% through the use of renewed batteries, and silver is a key element in the creation of panels, which will lead to an increase in demand for the metal. However, it cannot be certain when the need will materialize or whether we will also see the level of supply increase as well. According to analysts, in 2022, demand for precious metals may increase by 12%.

According to data from the CFTC (Commodity Futures Trading Commission), the number of speculative trades in silver decreased to 16,000 in September 2021 and has since increased to 46,000 contracts. So we can see here that demand has increased in terms of futures. The current positive dynamics can be observed from the local report of swap dealers, who began to reduce short positions in metal actively, and over the past week, their number has decreased by 3743 contracts, while the number of long positions has risen by 222 contracts.

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However, traders should note that the volatility level of silver is higher than other precious metals. This must be taken into consideration.

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