Silver Price Forecast: XAG/USD falls below $79.50 due to profit-taking

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Silver price (XAG/USD) depreciates by 1.75% after three days of gains, trading around $79.30 per troy ounce during the European hours on Wednesday. The price of the grey metal declines as investors lock in profits following its rally toward record highs.

Silver prices fall as investors take profits after the rally toward record highs.
Precious metals retreat as the US Dollar strengthens ahead of ADP Employment and ISM Services PMI.
Safe-haven Silver struggles as risk appetite rises amid easing geopolitical tensions after the US intervention in Venezuela.

The dollar-denominated precious metals, including Silver broadly pulled back as the US Dollar (USD) strengthened ahead of the upcoming US key economic data that could shape expectations for Federal Reserve (Fed) policy.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is gaining ground for the second successive day and trading around 98.60 at the time of writing.

US ADP Employment Change and ISM Services Purchasing Managers’ Index (PMI) data for December will be eyed later in the day. Traders will shift their focus toward the US Nonfarm Payrolls (NFP) due on Friday, which is expected to show job gains of 55,000 in December, down from 64,000 in November.

Fed Governor Stephen Miran said on Tuesday that the US central bank should cut interest rates aggressively this year to sustain economic momentum, while Minneapolis Fed President Neel Kashkari warned the unemployment rate could “pop” higher. The CME Group's FedWatch tool suggests Fed funds futures continue to price in about an 82.8% probability that the US central bank will keep rates unchanged at its January 27–28 meeting.

The safe-haven Silver struggles amid increased risk appetite as traders have so far largely shrugged off escalating geopolitical tensions worldwide following the United States (US) intervention in Venezuela and the capture of President Nicolas Maduro.

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.