Silver Price Forecast: XAG/USD returns above $36.50 buoyed by a softer US Dollar
- Silver bounces up from $36.30 lows favoured by USDollar's retreat.
- Dovish Fed minutes and lower US yields are weighing on the Greenback on Thursday.
- XAG/USD needs to breach $36.80 and $37.25 to confirm the bullish bias.
Silver (XAG/USD) appreciated on Thursday, with precious metals drawing support from a somewhat weaker US Dollar, as Treasury yields dropped on the back of dovishly tilted FOMC minutes and a strong auction of US bonds on Wednesday.
The minutes of the last Federal Reserve meeting confirmed a deep divergence within the committee, with most members foreseeing at least one rate cut before the end of the year.
This, along with a successful auction of $39 billion worth of 10-year US Treasury bills, snapped a five-day rally in US yields, which undermined speculative demand for the US Dollar.
Technical Analysis: XAG/USD keeps trading within a bullish channel
Silver has been trading in a choppy and volatile manner over the last six weeks. Still, the immediate trend maintains a moderate bullish bias, with the pair trading within an ascending channel from its lows on June 24.
The 4-Hour Relative Strength Index rose above the 50 level, indicating improved bullish momentum. However, the precious metal needs to extend above the July 8 and 7 highs, at $36.90 and $37.25, respectively, to confirm the positive trend.
On the downside, a breach of the support area between the channel bottom, at $36.30 and the July 9 low at $36.15 would signal a trend shift and increase pressure towards the $35.65-$35.75 area , June 25. 27 and July 1 lows).
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.
