Silver Price Forecast: XAG/USD tumbles from $30 as US Dollar gains ground with US Inflation in focus
- Silver price declines from $30.00, weighed down by a mild recovery in the US Dollar.
- Traders divide over the potential Fed rate-cut size in September.
- Silver price finds cushion near key 50-period EMA on a four-hour timeframe.
Silver price (XAG/USD) falls sharply from the psychological resistance of $30.00 in Wednesday’s European session. The white metal tumbles as the US Dollar (USD) recovers some ground after declining to a fresh year-to-date (YTD) low. Historically, buying interest in the US Dollar bodes poorly for the Silver price, given that it makes the Silver price expensive for investors.
The US Dollar (DXY), which tracks the Greenback’s value against six major currencies, delivers a mild recovery move to near 100.85 from 100.50. 10-year US Treasury yields drop to near 3.82%.
A mild recovery in the US Dollar appears to be the outcome of uncertainty among market participants ahead of the United States (US) core Personal Consumption Expenditure inflation (PCE) data for July, which will be published on Friday. The near-term outlook of the US Dollar has remained vulnerable as the Federal Reserve (Fed) is widely anticipated to start reducing interest rates from the September meeting. While trades remain split over the likely rate cut size.
The core PCE price index data, a Federal Reserve’s (Fed) preferred inflation measure, is expected to influence market expectations for the potential size of interest rate cuts in September. Economists estimated that annual underlying inflation accelerated to 2.7% from 2.6% in July, with month-on-month price pressures growing steadily by 0.2%.
Silver technical analysis
Silver price trades in a Rising Channel chart pattern on a four-hour timeframe in which each pullback is considered as a buying opportunity by market participants. The 50-period Exponential Moving Average (EMA) near $29.40 continues to provide support to the Silver price bulls.
The 14-period Relative Strength Index (RSI) falls inside the 40.00-60.00 range, suggesting a consolidation ahead.
Silver four-hour chart
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.