Silver Price Forecast: XAG/USD stalls below $39.40 long-term highs amid higher appetite for risk
- Silver rally stalls on lower demand for safe-havens after the US-Japan deal.
- Optimism about the possibility of more trade agreements is weighing on demand for precious metals.
- XAG/USD is showing signs of exhaustion at long-term highs above $39.15.
Silver (XAG/USD) is trading within a tight range at multi-year highs above $39.15 in the early European session on Wednesday. The precious metal retains most of its previous gains, despite the brighter market mood following the US-Japan trade deal, although upside attempts remain capped below $39.40.
News of a trade agreement between the US and Japan, which has lowered tariffs on imports from the Asian country to 15% from the previous 25%, has lifted market sentiment on hopes that more such deals are possible before the August 1 deadline.
Technical Analysis: Signs of a weakening bullish momentum
The broader XAG/USD trend remains bullish, but technical indicators are starting to show signs of exhaustion. The 4-hour RSI has reached overbought levels, but more importantly, is featuring a bearish divergence that should act as a warning for buyers.
In this context, and considering the unfavourable fundamental background, a correction from current levels appears likely. Bears are now testing previous resistance, which has turned into support at $39,15 (Jul 14 highs). Further down, Tuesday’s low, at $38.75 and the convergence of the reverse trendline, and July 18 lows, at $38.10, are the next potential targets.
On the upside, immediate resistance lies at the mentioned $39.40 Intra-day highs. Above here, the next target would be the 161.8% Fibonacci extension of the early July rally, at the $40.00 psychological area.
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.
