Silver Price Forecast: XAG/USD struggles to hold $38 as US-EU trade pact improves market mood
- Silver price trades with caution near $38.00 on confirmation of the US-EU trade deal.
- Washington will recieve 15% tariffs on all imports from Brussels.
- The Fed is expected to leave interest rates steady on Wednesday.
Silver price (XAG/USD) trades cautiously near the key support level of $38.00 during Asian trading hours on Monday. The white metal is expected to face pressure as the confirmation of a framework trade agreement between the United States (US) and the European Union (EU) has diminished demand for safe-haven assets.
The US-EU trade pact has increased the risk appetite of investors. S&P 500 futures have posted significant gains during the Asian trading session, demonstrating upbeat demand for risky assets.
Over the weekend, US President Donald Trump confirmed trade agreement between Washington and Brussels in which the US will charge 15% tariffs. The baseline tariff rate in the agreement is half of what Trump threatened in the mid of the month.
Going forward, the next trigger for the Silver price will be Federal Reserve’s (Fed) monetary policy announcement on Wednesday in which the central bank is expected to leave interest rates steady in the range of 4.25%-4.50%. The Fed has been keeping its borrowing rates steady since the start of the year.
Higher interest rates by the Fed for longer bodes poorly for non-yielding assets, such as Silver.
Silver technical analysis
Silver price corrects to near $38.00 from its recent highs of $39.53 posted last week. The 20-day Exponential Moving Average (EMA) is expected to act as key cushion for the Siver price, which trades around $37.85.
The 14-day Relative Strength Index (RSI) falls below 60.00, suggesting that the bullish momentum is been faded.
Looking down, the June 18 high of $37.32 will act as key support for the major. On the upside, the June 23 high near $39.53 will be a critical hurdle for the pair.
Silver daily chart
(This story was corrected on July 28 at 08:49 GMT to say that the 20-day EMA stands at $37.85, not $86.25.)
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
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.
