Silver Price Forecast: XAG/USD jumps to near $29 over Middle East woes, Fed policy in focus
- Silver price climbs to near $28.80 on multiple tailwinds./
- Widening Middle East conflicts have improved the Silver price’s safe-haven appeal.
- Investors see the Fed delivering dovish guidance on interest rates.
Silver price (XAG/USD) jumps to near a weekly high around $28.80 in Wednesday’s North American session. The precious metal strengthens on growing fears of widening Middle East conflicts and firm speculation that the Federal Reserve (Fed) will deliver dovish guidance on interest rates after leaving them unchanged in the range of 5.25%-5.50%.
Israeli air strike on Tehran in which Hamas leader Ismail Haniyeh was killed has prompted fears of an all-out war between Israel and Iran. Historically, escalating geopolitical tensions improve the safe-haven appeal of precious metals.
Meanwhile, investors await the Fed’s monetary policy, which will be announced at 18:00 GMT. Market experts see the Fed endorsing rate cuts in September as inflation has returned on the path that leads to the bank’s target of 2%. Also, increasing cracks in the United States (US) labor market strength would be a tailwind for rate cuts.
In the early American session, the US ADP released a weaker-than-expected Employment report for July. The report showed a weak labor demand in the private sector as payrolls were lower at 122K than estimates of 150K and the prior release of 155K. Weak employment data has weighed heavily on the US Dollar and bond yields.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, dips below 104.00. 10-year US Treasury yields slide below 4.10%. Lower yields on interest-bearing assets reduce the opportunity cost of investment in non-yielding assets, such as Silver.
Silver technical analysis
Silver price attempts to extend its recovery above the crucial resistance plotted from July 13 low at $28.66 in a four-hour timeframe. The white metal moves higher and aims to stabilize above the 50-period Exponential Moving Average (EMA), which trades around $28.60.
The 14-period Relative Strength Index (RSI) jumps above 60.00. A bullish momentum would trigger if it sustains above the same.
Silver four-hour chart
(This story was corrected on July 31 at 14:32 GMT to say in the third bullet that "Investors see the Fed delivering dovish guidance on interest rates", not hawkish)
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.
