Silver Price Forecast: XAG/USD aims to stabilize above $31 amid firm safe-haven bid
- Silver price soars to near $31.40 on heightened geopolitical tensions.
- Russia warned the UK to strike with intercontinental ballistic missiles that have a range of several thousand kilometers.
- Traders lean towards the option of an interest rate cut by the Fed in December.
Silver price (XAG/USD) strives to establish above $31.00 in Friday’s European session. The white metal surges to near $31.40 as demand for safe-haven bets has strengthened after Russia launched intercontinental ballistic missiles with a range of several thousand kilometers on Ukraine’s defense facilities in Dnipro.
The move appeared as retaliation given that Ukraine used United States (US) supplied ATACMS weapons and the United Kingdom (UK) provided storm shadow missiles to attack deep in Russia over the week.
Russian President Vladimir Putin has also warned the UK to strike with the same ballistic missile that their defense facility used against Ukraine, PA Media reported. Putin stated that their nation is entitled to use weapons against those nations who supplies weapons to Ukraine.
In response to that, the spokesperson of UK Prime Minister Keir Starmer said, “Only serves to strengthen our resolve and to ensure that Ukraine has what it needs to act in self-defense against Russia’s reckless and illegal invasion.”
The scenario of heightened geopolitical uncertainty improves the demand for safe-haven assets, such as Silver.
Apart from Silver, the safe-haven appeal of the US Dollar (USD) has also strengthened. The US Dollar Index (DXY), which gauges Greenback's value against six major currencies, posts a fresh two-year high at 108.00.
Meanwhile, investors look for fresh cues about the Federal Reserve’s (Fed) likely interest rate action in the December meeting. According to the CME FedWatch tool, there is a 56% chance that the Fed will cut interest rates by 25 basis points (bps) to 4.25%-4.50%.
Silver technical analysis
Silver price delivers a mean-reversion move to near the 20-day Exponential Moving Average (EMA) around $31.40 after declining to near $29.70. The white metal weakened after the breakdown of the horizontal support plotted from the May 21 high of $32.50.
The upward-sloping trendline from the February 29 low of $22.30 will act as key support for the Silver price around $29.50.
The 14-day Relative Strength Index (RSI) oscillates in the 40.00-60.00 range, suggesting a sideways trend.
Silver daily chart
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
Sagar Dua
FXStreet
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.
