Vertical Rally Moves Away from Traditional Technical Support
In the past three sessions, silver prices have diverged from the upward trend line that has offered support since the November 21 low of $48.64. For about 32 sessions, silver saw daily average gains of roughly 80 cents. However, starting December 31, the gains have soared to an impressive daily average of $6.85.
Since there isn’t any resistance against all-time highs, predicting how high prices might go becomes quite challenging. It appears that some unexpected external factors may be necessary to halt further increases in the market.
Alternative Factor: Testing Industrial Demand for Silver
Every commodity has potential substitutes, and silver is no exception. Take soybeans, corn, or live cattle, for example. Econ 101 taught us that if coffee prices soar, tea becomes the go-to alternative. If silver prices keep skyrocketing, those purchasing industrial goods might need to consider cheaper replacements, possibly harming business performance. Alternative options that don’t deliver the same power include copper, aluminum, nickel, or zinc. Yet, in many high-performance uses, while silver isn’t entirely swapped out, buyers might simply reduce the quantity they use.
Supply Issues: Why Miners Can’t Just Extract More
When traders observe the sharp increase in silver prices, they often wonder why miners aren’t extracting more. The reality is that most silver isn’t mined as pure silver, meaning supply won’t surge quickly. It’s primarily a by-product, and the mining process itself is relatively slow.
What Could Halt this Surge?
While we haven’t yet reached a peak, we do have some insights into what may lead to one. Essentially, profits get capped as supply ramps up and demand dwindles. But if we can’t mine additional supplies quickly enough, we might see individuals sell off their sterling silver tableware for a quick buck. Such small actions can drastically shift the market, reminiscent of the 1979-1980 period that saw staggering 100% returns.
Speaking of volatility, what we’re experiencing now is notably sharper than what was observed in the last week of December, especially after the Chicago Mercantile Exchange increased margins twice in one week. I’m tentatively suggesting that a margin hike is on the horizon, although whether it’ll be substantial enough to reverse the rally remains to be seen. Perhaps it will create a temporary uptick, but significant changes in trends would likely require something much more drastic.
