Learn with ETMarkets: As silver surges ahead, here’s how to trade this precious metal

Silver, a versatile metal, is experiencing a significant rise in demand in both industrial sectors and as a precious commodity. Over the past few months, silver has gained momentum, with prices in the Indian market climbing from Rs 81,000–Rs 82,000 per kilogram in August 2024 to Rs 91,000–Rs 92,000.

Market Outlook

One of the primary drivers of the recent surge in silver prices is the growing demand for metal in industrial applications, especially in green technologies like solar energy. Silver is a key component in photovoltaic cells used in solar panels, and with the global push for renewable energy, this demand is expected to continue rising. As nations like India and China expand their clean energy infrastructure, silver’s industrial use becomes even more crucial.

China, as a leading consumer of silver, also plays a critical role in shaping market dynamics. The country’s recent economic stimulus efforts, particularly in the infrastructure and manufacturing sectors, have bolstered demand for silver. Additionally, China’s recent rate cuts to spur economic growth and support its slowing economy are creating a more favorable environment for metals like silver.

The US Federal Reserve’s rate cuts started from September 18 2024 is another factor driving silver demand. As the Fed moves to lower rates to combat a slowing economy, precious metals like silver tend to benefit. Lower interest rates generally weaken the U.S. dollar and reduce the appeal of interest-bearing assets, making silver an attractive alternative for investors seeking to preserve value. India’s upcoming festival season, which kicked off in September and runs through the year-end, also plays a role in supporting silver demand. With the Government’s budget day import duty cut already pushing the demand high among retail and HNI on buying precious metals, silver has seen a strong surge post minor correction from July3 budget day. Indian consumers traditionally buy silver and gold during festivals like Diwali, pushing up demand and prices during this period.
Lessons for Investors
For investors, silver presents an opportunity for portfolio diversification, offering both industrial utility and value as a hedge against inflation and economic uncertainty. The dual role of silver as a precious and industrial metal makes it a unique asset that can provide stability and potential upside during periods of economic turbulence. Investors with a long-term view should consider silver’s growing role in the clean energy sector, which will likely sustain demand in the years to come. Strategic market timing is also essential. While silver prices have surged, long-term investors should be cautious about short-term volatility. Buying silver on dips, especially during times of profit booking or overbought conditions, can prove advantageous. Maintaining a diversified portfolio that includes a balance of precious metals can provide both security and growth potential.

Technical Insights
Technically, silver is showing strong bullish momentum, trading within a rising trendline pattern. The symmetrical triangle formation currently visible on the chart is indicative of a continuation pattern, where prices fluctuate within narrowing support and resistance levels. Symmetrical triangles typically represent consolidation phases before a breakout, and in the case of silver, it points to the potential for continued upward movement.

The MACD (Moving Average Convergence Divergence) indicator supports the bullish outlook. MACD, a momentum indicator that helps gauge market strength, is currently in a positive trend. The MACD line is above the signal line, suggesting upside potential. As long as the MACD remains positive, the overall market sentiment for silver is expected to stay bullish.

Silver’s price is currently trading at Rs 92,500, reaching the 100% Fibonacci extension level of the previous rally from Rs 79,500 to Rs 88,500 in August 2024. After taking support at Rs 82,500 in September, silver found renewed strength due to heightened geopolitical tensions surrounding Israel and Iran, coupled with the U.S. interest rate reversal. These developments have added to the metal’s safe-haven appeal, keeping market participants bullish.

However, traders should remain alert for potential profit booking as silver approaches overbought zones. The falling trendline resistance around Rs 92,500–Rs 93,000 could act as a barrier in the short term. Despite this, the overall bullish view remains intact, with strong support levels at Rs 85,000–Rs 87,500. If silver manages to break above the resistance, it could rally further toward the short-term upside potential of Rs 95,000–Rs 96,000, making a buy-on-dips strategy a viable option for investors.

Conclusion
In summary, silver’s recent surge is driven by a combination of industrial demand, global economic trends, and festival buying in India. The metal’s pivotal role in clean energy, along with the supportive macroeconomic environment, positions silver as a key investment in the coming years. For investors, silver offers both diversification benefits and growth potential, especially as part of a long-term portfolio. While technical indicators point to continued bullishness, caution is advised in the near term, with resistance levels and overbought conditions potentially leading to profit booking. Maintaining a strategic approach, focusing on buying during price dips, and keeping an eye on global developments can help investors navigate silver’s price swings effectively.

(The author is Vice President Research – Currency and Commodities at LKP Securities)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)