Silver Price Forecast: XAG/USD gives up some gains as US Retail Sales data outperform
- Silver price sacrifices some of its intraday gains as the US Dollar recovers strongly.
- Better-than-expected US Retail Sales Control Group data has resulted in the US Dollar’s recovery.
- Firm Fed rate-cut prospects keep the Silver price’s outlook strong.
Silver price (XAG/USD) surrenders a majority of the gains and drops to near $30.50 in Tuesday’s American session. The white metal drops as the US Dollar (USD) recovers after the United States (US) Retail Sales report for June exhibited a better performance than market consensus.
Monthly Retail Sales remained flat, as expected, but May’s reading was upwardly revised to 0.3% from 0.1%. Retail Sales Control Group, a key measure to consumer spending component of Gross Domestic Product (GDP) that excludes receipts from auto dealers, building-materials retailers, gas stations, office supply stores, mobile home dealers and tobacco stores, rose at a stronger pace of 0.9% than the former release of 0.4%.
A slightly better Retail Sales report has improved the US Dollar’s appeal. However, the pace at which core Retail Sales have grown is incapable of reversing the disinflation process.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, jumps to near 104.50. Higher US Dollar makes the Silver an expensive bet for investors.
On a broader note, the Silver price remains firm amid strong speculation that the Federal Reserve (Fed) will start reducing interest rates from the September meeting. Market expectations for Fed rate cuts rose sharply after the Consumer Price Index (CPI) report for June showed that price pressures decelerated at a faster-than-expected pace.
Silver technical analysis
Silver price turns sideways in a range between $30.40-$30.80 for more than one week. The near-term outlook of the Silver price remains firm as the asset holds the breakout of the Falling Channel formation on a four-hour timeframe.
The 50-period Exponential Moving Average (EMA) near $30.70 continues to provide support to the Silver price bulls.
The 14-period Relative Strength Index (RSI) oscillates inside the 40.00-60.00 range, exhibiting indecisiveness among market participants.
Silver four-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
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.
