Silver Price Forecast: False breakout and hawkish Fed sinks XAG
- XAG/USD drops after false breakout above the $70.00 mark.
- RSI softens, warning bulls may be losing short-term momentum.
- Break below $66.00 exposes $65.00 and 50-day SMA.
Silver price makes a U-turn after reaching a two-month high of $71.12, then dives below the $69.00 figure as Fed Chair Kevin Warsh leaned hawkish in his Jackson Hole speech, pushing US Treasury yields higher. Consequently, the white metal edged lower, as XAG/USD trades at $66.76, down 3.60%.
XAG/USD Price Forecast: Technical Outlook
From a price action standpoint, Silver's false breakout above the $70.00 level could open the door to a deeper-than-expected pullback, even though XAG is short-term upward biased.
Momentum, as depicted in the Relative Strength Index (RSI), favours further upside as buyers are in control. However, over the last two days, the RSI dipped, indicating that bulls are not out of the woods.
For a bullish resumption, Silver must clear $70.00. A breach of the latter will expose the high of the day (HOD) at $71.12, followed by the $72.00 milestone. Above sits the 200-day SMA at $72.48.
On the other hand, the path of least resistance in the near-term is a break below $66.00, which could prompt a test of the $65.00 mark, followed by the 50-day SMA at $61.44. Once hurdled, the $60.00 psychological level is below.
XAG/USD Price Chart – Daily
Silver FAQs
Silver is a precious metal highly traded among investors. It has been historically used as a store of value and a medium of exchange. Although less popular than Gold, traders may turn to Silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during high-inflation periods. Investors can buy physical Silver, in coins or in bars, or trade it through vehicles such as Exchange Traded Funds, which track its price on international markets.
Silver prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can make Silver price escalate due to its safe-haven status, although to a lesser extent than Gold's. As a yieldless asset, Silver tends to rise with lower interest rates. Its moves also depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong Dollar tends to keep the price of Silver at bay, whereas a weaker Dollar is likely to propel prices up. Other factors such as investment demand, mining supply – Silver is much more abundant than Gold – and recycling rates can also affect prices.
Silver is widely used in industry, particularly in sectors such as electronics or solar energy, as it has one of the highest electric conductivity of all metals – more than Copper and Gold. A surge in demand can increase prices, while a decline tends to lower them. Dynamics in the US, Chinese and Indian economies can also contribute to price swings: for the US and particularly China, their big industrial sectors use Silver in various processes; in India, consumers’ demand for the precious metal for jewellery also plays a key role in setting prices.
Silver prices tend to follow Gold's moves. When Gold prices rise, Silver typically follows suit, as their status as safe-haven assets is similar. The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, may help to determine the relative valuation between both metals. Some investors may consider a high ratio as an indicator that Silver is undervalued, or Gold is overvalued. On the contrary, a low ratio might suggest that Gold is undervalued relative to Silver.
Author
Christian Borjon Valencia
FXStreet
Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.
