Silver price remains under intense pressure this week as spot ETF inflows wane and inflation risks persist. XAG dropped to $75, down by 40% from the year-to-date high. This article explores the top reasons why it has dropped and what to expect.
Silver price has dropped amid waning ETF inflows
Data compiled by ETF dot com shows that American investors are no longer accumulating silver.
The popular iShares Silver Trust (SLV) has had over $2.8 billion in outflows this year. It has shed $79 million in assets this week, bringing its assets to over $38 billion.
The fading ETF inflows is happening as investors rotate to the better-performing stock market, where popular funds like VOO and SPYM have added billions in inflows this year.
At the same time, investors are concerned about the global economy now that the blockade in the Strait of Hormuz has continued with no end in sight.
The blockade has led to higher crude oil prices, with Brent and the West Texas Intermediate (WTI) rising to $106 and $98, respectively.
As a result, analysts predict that the global economy may go through a recession this year, especially if the crisis escalates. Some analysts are even predicting a global depression.
Silver is affected by the global economy because of its role in the industrial sector, where it is used to make products like kitchenware and solar panels.
Meanwhile, the rising energy prices mean that inflation will remain sticky for longer. A report released earlier the month showed that inflation rose to 3.3% in March, and OECD estimates that it will hit 4.2% if the WTI remains above $95 for longer.
Soaring inflation will make it hard for the Federal Reserve to embrace a dovish tone even when Kevin Warsh becomes the Chairman. Market participants are pricing in a 40% chance that the Fed will cut rates in the second half of the year.
At the same time, there are chances that Warsh will not become the Fed Chair any time soon as Senator Thom Tillis has warned that he will block his nomination as long as the Jerome Powell lawsuit continues.
At the same time, market participants believe that Powell will continue serving in the Fed after his term ends. Leaving his post as a Fed governor would allow Trump to appoint another member.
Wyckoff Theory explains the silver crash
Silver price chart | Source: TradingView
Meanwhile, technicals also explain the ongoing silver price weakness. The three day chart shows that silver remained in a narrow range for years. This is a sign that it remained in the accumulation phase of the Wyckoff Theory in this period.
Silver then made a major breakout as it moved to the markup phase. This explains why it jumped to a record high this year as the Fear of Missing Out (FOMO) continued.
Silver has now moved to the distribution or the markdown phase, where panicked investors are selling their coins.
Therefore, the most likely scenario is where it continues falling, potentially to the key support level at $61. It will then bounce back as investors buy the dip.
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