Silver Price Forecast: XAG/USD revisits monthly high near $31 as US Dollar extends downside

Silver price extends its upside to near $31.00 amid a sell-off in the US Dollar.
The Greenback faces pressure as Trump has announced lower tariffs on China than expected.
The Fed is expected to keep interest rates steady in the next three policy meetings.

Sagar Dua FXStreet

Silver price (XAG/USD) reclaims a more-than-a-month high of $30.95 in Wednesday’s European session. The white metal strengthens as the US Dollar (USD) extends its downside due to less-fearful tariff plans announced by United States (US) President Donald Trump in his first two days of administration.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, refreshes a two-week low at 107.80. The lower US Dollar makes the Silver price inexpensive for investors. 10-year US Treasury yields tick lower to near 4.57%.

Trump has announced 25% tariffs on Mexico and Canada and is discussing 10% tariffs on China from February 1. However, his comments during the election campaign indicated that the tariffs would be much higher than what he actually announced.

Lower tariffs by Trump would also weigh on market speculation that the Federal Reserve (Fed) will keep interest rates at their current levels for longer. Market participants were anticipating that higher tariffs would increase demand for domestically produced goods and services. This scenario would have accelerated inflationary pressures.

Currently, the CME FedWatch tool shows that traders are confident that the Fed will keep its key borrowing rates in the range of 4.25%-4.50% in the coming three policy meetings.

Silver technical analysis

Silver price gathers strength to return above the north-side sloping trendline near $30.85, which is plotted from the 29 February 2024 low of $22.30 on a daily timeframe.

The white metal discovered strong buying interest near the 200-day Exponential Moving Average (EMA), around $29.45, and has now extended its upside above the 20-day EMA, which is around $30.26. This suggests that the overall trend has turned bullish.

The 14-day Relative Strength Index (RSI) rises to near 60.00. A fresh bullish momentum would trigger if it manages to break above 60.00.

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

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.

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