Silver Price Forecast: XAG/USD holds steady above $37.00 as bulls pause for a breather

Silver enters a bullish consolidation phase during the Asian session on Wednesday.
A slightly overbought daily RSI holds back the XAG/USD bulls from placing fresh bets.
Any corrective pullback might be seen as a buying opportunity and remain limited.

Haresh Menghani FXStreet

Silver (XAG/USD) is seen consolidating the previous day's strong gains to its highest level since February 2012 and oscillating in a narrow range during the Asian session on Wednesday. The white metal currently trades just above the $37.00 round figure and seems poised to prolong the recent well-established uptrend from the April monthly swing low.

From a technical perspective, the overnight breakout through a short-term descending trend channel, which constituted the formation of a bullish flag pattern, and the subsequent move up validate the constructive outlook. However, a slightly overbought Relative Strength Index (RSI) on the daily chart warrants some caution. Hence, it will be prudent to wait for some near-term consolidation or a modest pullback before placing fresh bullish bets around the XAG/USD and positioning for further gains.

That said, any corrective slide is more likely to attract fresh buyers and remain limited near the ascending channel resistance breakpoint, around the $36.90-$36.85 region. A convincing break below, however, might prompt some technical selling and drag the XAG/USD further towards the $36.40-$36.35 horizontal support en route to sub-$36.00 levels, or the weekly low. The latter should act as a key pivotal point, which if broken could pave the way for some meaningful downside in the near term.

Nevertheless, the XAG/USD seems poised to climb further toward testing the February 2012 swing high, around mid-$37.00s. Some follow-through buying should allow the XAG/USD to aim toward reclaiming the $38.00 round figure. The momentum could extend further toward the next relevant hurdle near the $38.50-$38.55 region.

Silver 4-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

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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