Silver Price Forecast: XAG/USD consolidates above $41.00, bulls await trading range breakout
- Silver extends its consolidative price move in an over one-week-old trading range.
- The bullish technical setup backs the case for an eventual breakout to the upside.
- Weakness below the $41.00 mark could attract dip-buying and remain limited.
Silver (XAG/USD) struggles to capitalize on the previous day's positive move and oscillates in a narrow trading band, just above the $41.00 mark during the Asian session on Thursday. The white metal, meanwhile, remains confined in a familiar range held over the past week or so as traders opt to wait for the US consumer inflation figures before placing fresh directional bets.
Against the backdrop of the recent strong move up to the highest level since September 2011, the range-bound price action might be categorized as a bullish consolidation phase. Furthermore, the daily Relative Strength Index (RSI) has eased from overbought conditions, which, along with positive oscillators on the daily chart, suggests that the path of least resistance for the XAG/USD is to the upside.
However, it will still be prudent to wait for some follow-through buying and a sustained strength beyond the trading range hurdle, around $41.45-$41.50 zone, before positioning for any further gains. The XAG/USD might then accelerate the positive momentum towards reclaiming the $42.00 round-figure mark before eventually climbing to the next relevant resistance near the $42.65 region.
On the flip side, a corrective pullback below the $41.00 mark might continue to attract buyers and find decent support near the $40.55-$40.50 region. The said area represents the lower boundary of the aforementioned trading range, which, if broken, might prompt some technical selling and make the XAG/USD vulnerable to weaken further towards the $40.00 psychological mark en route to mid-$39.00s.
Silver 4-hour 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
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
