Silver Price Forecast: XAG/USD bulls need to wait for close above $32.00 mark

Silver retreats further from its highest level since December 2012 touched on Friday.
The recent repeated failures to find acceptance above $32.00 warrant caution for bulls.
Any further slide to $31.65 could be seen as a buying opportunity and remain limited.

Haresh Menghani FXStreet

Silver (XAG/USD) kicks off the new week on a weaker note and extends Friday's late pullback from the vicinity of the $33.00 mark, or its highest level since December 2012. The white metal remains depressed around the $32.00 round figure during the first half of the European session, though the mixed technical setup warrants some caution before placing aggressive bearish bets.

The recent repeated failures to find acceptance above the $32.00 mark constitute the formation of a bearish multiple-tops pattern on the daily chart. That said, oscillators on the daily chart are holding comfortably in positive territory and support prospects for the emergence of some dip-buying near the $31.65 area. This should limit the downside for the XAG/USD near the $31.40-$31.35 horizontal support.

The subsequent fall has the potential to drag the commodity towards the $31.00 mark. Some follow-through selling below last week's low, around the $30.90-$30.85 area, could make the XAG/USD vulnerable to accelerate the slide further towards the $30.40-$30.35 intermediate support en route to the $30.00 psychological mark and the 50-day Simple Moving Average (SMA), around the $29.55 zone.

Meanwhile, bulls need to wait for acceptance above the $32.00 mark and a sustained strength beyond the $32.25 supply zone before positioning for an extension of a two-month-old uptrend. The XAG/USD might then make a fresh attempt to conquer the $33.00 round figure before climbing further towards the December 2012 swing high, around the $33.85 region.

Silver daily chart

Silver FAQs

Why do people invest in Silver?

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.

Which factors influence Silver prices?

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.

How does industrial demand affect Silver 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.

How do Silver prices react to Gold’s moves?

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

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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