Silver Price Forecast: XAG/USD tumbles below $31.00 as US Dollar rallies with eyes on Fed speakers
- Silver price slumps below $31.00, weighed down by US Dollar’s rally.
- Trump’s victory has improved the US Dollar’s long-term outlook.
- Silver price sees more downside towards $29.00.
Silver price (XAG/USD) slides below the key support of $31.00 in Monday’s North American session. The white metal weakens as the US Dollar (USD) rallies on optimism over Republican Donald Trump’s victory in the United States (US) presidential elections.
Trump vowed to raise import tariffs by 10% universally and lower corporate taxes in his election campaign, a scenario that would boost fiscal deficit and inflationary pressures. This would force the Federal Reserve (Fed) to turn hawkish on interest rates. The impact will be favorable for the US Dollar (USD) and bond yields. Usually, higher yields on interest-bearing assets increase the opportunity cost of holding an investment in non-yielding assets, such as Silver.
At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, surges above 105.60. 10-year US Treasury yields soar to 4.37%. This week, investors will be focused on speeches from a slew of Fed officials for fresh interest rate guidance. According to the CME FedWatch tool, the Fed is expected to cut interest rates by 25 basis points (bps) again to 4.25%-4.50% in the December meeting.
Meanwhile, an absence of China’s stimulus package allocation has also weighed on the Silver. Silver, as a metal, has applications in various industries such as power, Electric Vehicles, and mining, etc, and a smaller-than-expected stimulus boost has weakened Silver’s appeal.
On Friday, the National People's Congress (NPC) unveiled a 10 trillion yuan debt package to stabilize economic growth.
"It may be disappointing for those who were expecting the NPC meeting to approve a massive fiscal package, but the expectation is unrealistic because the policy goal is to achieve the GDP growth target and reduce tail risks, not to reflate the economy in any meaningful way," analysts at Macquarie said.
Silver technical analysis
Silver price declines toward the upward-sloping trendline around $29.00, plotted from the February 28 low of $22.30. The white metal weakened after breaking below the horizontal support plotted from May 21 high of $32.50.
The near-term trend of the Silver price has weakened as it establishes below the 50-day Exponential Moving Average (EMA), which trades around $31.60.
The 14-day Relative Strength Index (RSI) slides to near 40.00. A bearish momentum will trigger if the RSI (14) drops below the same.
Silver daily 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.
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