Silver Price Forecast: XAG/USD retreats further from one-month top, downside seems limited

Silver attracts some sellers and drops to a fresh weekly low on Wednesday.
Any further slide could be seen as a buying opportunity and remain limited.
The $29.40 confluence resistance breakpoint might now act as a strong base.

Haresh Menghani FXStreet

Silver (XAG/USD) drifts lower during the Asian session on Wednesday and moves away from a one-month peak, around the $31.10 region touched earlier this week. The white metal currently trades around mid-$30.00s, or the weekly low and down nearly 0.70% for the day, though the technical setup supports prospects for the emergence of some dip-buying.

The recent breakout through a short-term descending trend-line resistance, around the $29.40 area, which coincided with the 100-day Simple Moving Average (SMA) validates the near-term positive outlook. Moreover, oscillators on the daily chart are holding in positive territory and are still far from being in the overbought zone, suggesting that the path of least resistance for the XAG/USD is to the upside.

From current levels, any subsequent decline is likely to attract fresh buyers near the $30.00 psychological mark. This should help limit the downside near the $29.40 confluence resistance breakpoint, now turned support. The latter should act as a pivotal point, which if broken could drag the XAG/USD below the $29.00 round figure, towards the $28.45-$28.40 intermediate support en route to the $28.00 mark.

On the flip side, the $30.80 region now seems to act as an immediate hurdle ahead of the $31.00 mark, above which the white metal could prolong its appreciating move. The XAG/USD might then climb to the $31.45 region and retest the July swing high, around the $31.75 zone, before aiming to reclaim the $32.00 round-figure mark and challenge a one-decade high, around mid-$32.00s touched in May.

Silver daily 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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