Silver Price Forecast: XAG/USD hits two-week lows at $37.15 amid a firmer US Dollar
- Silver slides for the fifth day in a row, amid a stronger US Dollar, higher yields.
- Precious metals remain subdued with markets in a cautious mood, awaiting Fed Chair Powell's conference on Friday
- XAG/USD is testing support at $37.15 with momentum indicators reaching oversold levels.
Silver (XAG/USD) is trading lower for the fifth consecutive day on Wednesday. The precious metal is struggling amid a stronger US Dollar and is testing support at $37.15, following a sharp reversal from the $38.20 area on Tuesday.
The US Dollar Index, which measures the value of the USD against the six most-traded currencies, is consolidating gains after a 0.5% recovery over the last two days. A moderate recovery in US Treasury yields is boosting the US Dollar and weighing on Silver, as traders trim bets on immediate Fed cuts with all eyes on Fed Chairman Powell’s speech at the Jackson Hole meeting on Friday.
Technical analysis: XAG/USD is testing support at $37.15
The technical picture highlights a strong bearish momentum after rejection at the reverse trend line above $38.00. The pair, however, has found support at the 61.8% Fibonacci retracement of the early August rally, at 37.15, with RSI at oversold levels in most intraday timeframes, which points to the possibility of some consolidation.
A confirmation below $37.15 brings the 78.6% Fibonacci retracement of the mentioned cycle, at $36.75, and the August 4 low, of $36.65, to focus. Further depreciation is highly unlikely today.
To the upside, immediate resistance is the previous support, at the $37.670-$37.80 area, which contained bears on August 15, 18, and 19. Further up, Tuesday’s high at $38.20 and the mentioned trendline, at $38.55, will challenge bears.
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
Guillermo Alcala
FXStreet
Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.
