Silver Price Forecast: XAG/USD flat lines below mid-$31.00s, bullish potential seems intact

Silver lacks a firm intraday direction and consolidates below the mid-$31.00s on Wednesday.
The technical setup remains tilted in favor of bulls and supports prospects for further gains.
A break below the $30.90-$30.85 area, or the weekly low, to pave the way for deeper losses.

Haresh Menghani FXStreet

Silver (XAG/USD) struggles to capitalize on the previous day's positive move and oscillates in a narrow trading band, below mid-$31.00s during the Asian session on Wednesday. The white metal, meanwhile, remains close to the weekly low touched on Monday, though the setup favors bullish traders and supports prospects for the resumption of the uptrend from the September swing low.

The XAG/USD is holding comfortably above technically significant 100-day and 200-day Simple Moving Averages (SMA). This, along with the recent breakout through a short-term descending trend-line resistance and positive oscillators on the daily chart, validates the positive outlook and suggests that the path of least resistance for the XAG/USD is to the upside. Hence, some follow-through strength towards the $31.80 horizontal zone, en route to the $32.00 mark, looks like a distinct possibility.

A sustained strength beyond the latter could push the XAG/USD beyond the $32.25 intermediate hurdle, towards challenging the multi-year peak, around the $32.70 region touched last week. The subsequent move up will be seen as a fresh trigger for bullish traders and pave the way for a further near-term appreciating move.

On the flip side, the $31.00 round figure now seems to act as immediate support ahead of the $30.90-$30.85 region, or the weekly low. The subsequent downfall has the potential to drag the XAG/USD further towards the $30.25 support zone. This is followed by the $30.00 psychological mark and the 100-day SMA support near the $29.80-$29.65 region. A convincing break below the latter might shift the bias in favor of bearish traders and pave the way for a further depreciating move.

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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