Silver price suffered a big reversal on Friday, a trend that may accelerate in the coming days. It declined by more than 28% in its worst daily performance in years. This crash coincided with the surge in SLV ETF outflows and the nomination of Kevin Warsh as the next Federal Reserve Chairman.
Silver Price Crashed as SLV ETF Outflows Rose
The price of silver crashed on Friday, as BanklessTimes recently predicted here and here. This crash intensified as third-party data showed that American investors dumped their silver holdings in January.
The closely watched iShares Silver ETF (SLV) recorded over $2 billion in outflows last week, the largest weekly outflow in months. In total, it shed more than $2.9 billion in January, even as the silver price surged. Its performance was a sharp contrast to the closely-watched SPDR Gold ETF (GLD), which has added billions in assets this year.
The silver price will likely decline due to important data released on Saturday from China. A report by the National Bureau of Statistics showed that the country’s manufacturing PMI entered the contraction zone in January. It declined to 49.3 from 50.1. Similarly, the non-manufacturing PMI dropped to 49.4 from 50.2.
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A PMI reading of less than 50 is a sign that a sector is contracting. This is important for silver because, unlike gold, it is an industrial metal used in the manufacture of key items such as solar panels and semiconductors. As such, the contracting manufacturing sector in China could indicate that demand is waning.
The other major catalyst for the silver price will be Donald Trump’s decision to nominate Kevin Warsh to become the next Federal Reserve Chairman on Friday. Warsh is widely regarded as a more hawkish Federal Reserve official, given his past views. He will likely be interviewed this week by CNBC or Bloomberg, during which he will share his views on interest rates.
XAG Price Technical Analysis
The daily timeframe chart shows that the silver price suffered a harsh reversal on Friday, moving from a record high of $121 to a low of $74.70. This decline happened after it formed an evening star pattern, which is made up of a small body and upper and lower shadows.
It also moved to the 50% Fibonacci Retracement level, while the Relative Strength Index (RSI) and the MACD indicators have continued falling.
Therefore, the most likely scenario is that the silver price continues to fall as many traders exit their positions. If this occurs, it may reach the 61.8% Fibonacci Retracement level at $64.
The alternative scenario is where silver rebounds and retests the 61.8% Fibonacci Retracement level at $100. This rebound will be part of a dead-cat bounce, a temporary rebound that occurs when an asset is in a downward spiral.
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