Silver Price Forecast: XAG/USD retreats below $38.50 amid a firmer Dollar

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Silver drifts lower from highs above $39.00 amid US Dollar strength.
Concerns about France's government collapse are offsetting investors' doubts about the Fed's independence.
XAG/USD bears are testing support at $38.35.

Silver’s (XAG/USD) accelerates its reversal from last week’s highs right above $39.00, to levels below $38.50, with bears testing support at Tuesday’s low of $39.35, amid a broad-based US Dollar strength on Wednesday.

The US Dollar Index, which measures the value of the US Dollar against the world’s most-traded currencies, appreciates for the fourth consecutive day. The Greenback is drawing support from a weak Euro amid market concerns about the consequences of a highly likely collapse of the French government.

The market, so far, is shrugging off concerns about Trump’s attempts to compromise the Federal Reserve’s independence and rising hopes of immediate Fed cuts, which leaves precious metals on the defensive.

Technical Analysis: $38.35 support is a key level for bears

From a technical point of view, the XAG/USD pair shows a bearish correction from the one-month highs at $39.07 hit last Friday, with price action testing support at $38.35 (August 25 and 26 lows)

A successful break of this level would push the 4-Hour RSI below the key 50 level, increasing bearish momentum and bringing the August 22 low, at $37.70, into play. Further down the bottom of the ascending channel is now around $37.25.

To the upside, the intraday high at $37.875 and Tuesday’s high at $37.85 are likely to challenge bulls ahead of the August 22 high, at $39.10, and the July 22 high, at $39.55.

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.