Silver (XAG/USD) builds on the previous day's bounce from the $30.20-$30.15 area, or its lowest level since October 8 and gains some follow-through positive traction during the Asian session on Wednesday. The momentum lifts the white metal back closer to the $31.00 mark in the last hour, though the technical setup warrants some caution before positioning for any further gains.
Given that the XAG/USD showed resilience below the 100-day Simple Moving Average (SMA) on Tuesday, the recovery could be attributed to short-covering amid some repositioning ahead of the US inflation figures. That said, oscillators on the daily chart have been gaining negative traction and are still away from being in the oversold zone. This, in turn, suggests that any further move up could be seen as a selling opportunity and runs the risk of fizzling out rather quickly.
The momentum, however, could extend further towards the next relevant hurdle near the $31.60-$31.65 region, though is more likely to remain capped near the $32.00 round figure. The latter should act as a key pivotal point, which if cleared decisively will indicate that the recent corrective slide from the vicinity of the $35.00 psychological mark, or a 12-year high touched in October has run its course. This would shift the bias in favor of bulls and pave the way for additional gains.
On the flip side, the $30.60 area, or the 50% Fibonacci retracement level of the August-October rally, now seems to protect the immediate downside. This is followed by over a one-month low, around the $30.20-$30.15 region touched on Tuesday and the $30.00 psychological mark. Acceptance below the latter will confirm a near-term breakdown below the 100-day SMA and make the XAG/USD vulnerable to accelerate the fall further towards the 61.8% Fibo. level, near the $29.65-$29.60 region.
The downward trajectory could extend further towards the $29.00 mark before the XAG/USD eventually drops to the next relevant support near the $28.75 region en route to the mid-$28.00s.
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.