Silver Price Forecast: XAG/USD climbs to near $28 with US Inflation in spotlight

Silver price jumps to near $28 on multiple tailwinds.
Market speculation for Fed big rate cuts in September has waned significantly.
Investors await the US CPI for July for fresh guidance on interest rates.

Sagar Dua FXStreet

Silver price (XAG/USD) surges to near $28.00 in Monday’s North American session. The white metal gains amid geopolitical risks and firm speculation that the Federal Reserve (Fed) will start reducing interest rates from the September meeting.

Conflicts between Iran and Israel in the Middle East are expected to widen further as the former is expected to retaliate for the assassination of the Hamas leader by an Israeli air strike in Tehran. The appeal of Silver as a safe haven improves amid geopolitical uncertainty.

Meanwhile, market speculation for the Fed rate cuts in September remain robust but uncertainty over the size has deepened significantly. According to the CME FedWatch tool, 30-day Federal Funds Futures pricing data shows that traders see a 46.5% chance that interest rates will be reduced by 50 basis points (bps) in September. The likelihood of a 50 bp rate reduction has weakened significantly from 85%, recorded a week ago.

A sharp decline in the Fed's big interest-rate cut prospects has offered some support to the US Dollar (USD) and bond yields. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, steadies above 103.00. 10-year US Treasury yields hover near 3.95%.

Going forward, investors will focus on the United States (US) Consumer Price Index (CPI) data for July, which will be published Wednesday. Headline and core CPI, which strips off volatile food and energy prices, are expected to have decelerated to 2.9% and 3.2%, respectively.

Silver technical analysis

Silver price rises to near the upward boundary of the Falling Channel formation in a four-hour timeframe. Usually, investors see pullbacks in the above-mentioned chart pattern as selling opportunities by market participants. The asset remains below the 200-period Exponential Moving Average (EMA) near $28.76, suggesting that the overall outlook is bullish.

The 14-period Relative Strength Index (RSI) attempts to break above 60.00. Sustenance above the same would improve Silver’s appeal.

Silver four-hour 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

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.

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