Silver Price Forecast: XAG/USD attracts some sellers below $28.00 as traders brace for US key data
- Silver price loses ground for the fourth consecutive day around $27.90 in Wednesday’s early European session, down 0.55% on the day.
- Stronger USD and Chinese demand concerns undermine Silver, while rising Fed rate cut bets might help limit its losses.
- The US August Nonfarm Payrolls report will take center stage on Friday.
Silver price (XAG/USD) faces some selling pressure near $27.90 on Wednesday during the early European trading hours. The renewed US Dollar (USD) demand weighs on the USD-denominated Silver price. Traders will take more cues from the highly-anticipated US Nonfarm Payrolls (NFP) on Friday, which might influence the white metal price.
China’s service activity growth slowed in August despite the summer travel peak. The Chinese Caixin Services Purchasing Managers' Index (PMI) dropped to 51.6 in August from 52.1 in July, weaker than the estimation of 52.2. This report and another PMI report on the weekend added concerns about the economic slowdown and deterioration of demand in China, which exert some selling pressure on the Silver price as China is the top silver exporter globally.
The imminent Federal Reserve (Fed) rate cuts might underpin the precious metal in the near term as it makes Silver cheaper for most buyers. The markets are now pricing in nearly 61% possibility of a 25 basis points (bps) rate cut by the Fed in September, while the chance of a 50 bps reduction stands at 39%, according to the CME FedWatch tool.
The US August Nonfarm Payrolls (NFP) report on Friday will be more significant than usual and might offer some hints about the size and pace of the Fed rate cut. The US economy is expected to see 163K job additions in August, while the Unemployment Rate is expected to tick lower to 4.2%. In case of the weaker-than-expected reading, this might prompt speculation of the looming US recession and deeper rate cuts, which could boost the Silver price.
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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