Silver price bounces off support below $25; weakness is overdone - Commerzbank

(July 21) Growing fears that a new wave of the COVID-19 virus will disrupt the global economic recovery is weighing on silver prices, but one bank says that the weak price action is overdone.

Overnight, silver prices dropped to a three-month low below $25.00 an ounce but have managed to push back above that critical psychological level during the North American session. September silver futures last traded at $25.215 an ounce, up nearly 1% on the day.

The silver market is also underperforming gold, with the gold/silver ratio currently trading above 71 points, a level not seen since the start of the year.

In a note to clients published Wednesday, Carsten Fritsch, precious metals analyst at Commerzbank, said that silver appears to be oversold.

"It appears that concerns about renewed economic restrictions in response to the spread of the Delta variant of coronavirus are weighing more heavily at present. This would also affect industrial demand for silver, which accounts for a good half of all silver demand. We believe these concerns to be exaggerated and expect the silver price to recover soon," he said.

Fritsch reiterated his firm's call for silver prices to end the year around $30 an ounce.

Looking at silver's technical outlook, the German bank said that the precious metal is on the defensive as it has been unable to break resistance at its 55-day moving average, which comes in around $26.94 an ounce.

On the downside, the bank says that investors need to watch support at $24.40 an ounce. "Only [a move] below here will negate our longer term bullish bias," the technical analysts said.

Commerzbank sees further weakness in silver in the near term and is neutral on the precious metal for the next month.

Kitco