Silver Price Forecast: XAG/USD loses steam ad hits lows sub-$41.00
- Silver is testing levels below $41.00 with upside momentum vanishing.
- The precious metals is turning lower as the US Dollar bounces up from lows.
- XAG/USD is showing signs of topping after having rallied more than 10% from mid-August lows.
Silver (XAG/USD) is showing a waning upside momentum on Thursday with bears exploring levels below $41.00 at the early European session, as the US Dollar Index bounces up from lows with all eyes on the August US Consumer Price Index release, due later in the day.
From a wider perspective, the precious metal remains trading back and forth on both sides of the mentioned $41.00 line, in a consolidating pattern, following a 10% rally from late August lows. Growing hopes of Federal Reserve monetary easing have been boosting precious metals over the last weeks, but the pair is starting to give signs of topping, as rate cuts become a done deal.
Technical Analysis: A bearish Head & Shoulders in progress
The technical picture keeps showing a consolidation pattern. Bulls’ failure to breach the resistance area at $41.45 and the lower high printed on Wednesday point to a potential bearish H&S pattern in progress, a common reversal pattern, further supported by the US Dollar Index’s firmer outlook.
The neckline of the H&S pattern is the $40.90 area, but key support is at the area between September 2 and 4 lows at 40.40 and 40.15, respectively. Further down, the H&S’s measured target is the August 31 low, at $39.50.
To the upside, the par needs to break the mentioned $41.50 to negate this view. Above here, the $42,00 psychological level might challenge bulls ahead of the 261.8% Fibonacci extension of the August 20-24 upleg, at $42.30.
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.
