Silver Price Forecast: XAG/USD trades around $40.50 after breaking below 14-year highs

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Silver price reached a 14-year high at $40.85 on Tuesday.
The 14-day Relative Strength Index has dipped just below the 70 mark, signaling an overbought-driven correction.
The primary support lies at the nine-day EMA of $39.38.

Silver price (XAG/USD) halts its five-day winning streak, trading around $40.30 per troy ounce during the European hours after retreating from $40.85, the highest since September 2011, reached on Tuesday. The technical analysis of the daily chart suggests the price of the precious metal rises upwards within an ascending channel pattern, strengthening the bullish bias.

The 14-day Relative Strength Index (RSI) has moved slightly below the 70 level, suggesting a retreat after reaching an overbought region. However, the Silver price may regain ground as the market sentiment is still bullish. Additionally, the Silver price is trading above the nine-day Exponential Moving Average (EMA), indicating that short-term price momentum is stronger.

On the upside, the XAG/USD pair may test the recently marked 14-year high at $40.85, followed by the psychological level of $41.00.

The Silver price may find its primary support at the nine-day EMA of $39.37, followed by the ascending channel’s lower boundary around $39.10. A break below the channel would weaken the bullish bias and put downward pressure on the metal price to reach the 50-day EMA of $37.78.

Further declines would dampen the medium-term price momentum and prompt the Silver price to navigate the region around the three-month low at $35.80, recorded on July 1.

XAG/USD: Daily Chart

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.