Silver Price Forecast: XAG/USD hovers above a key support in the $63.00 area
- XAG/USD pulls back below $64.00 on Monday after rejection at the $65.30 area on Friday.
- Market expectations of Fed monetary tightening and a risk-off mood are supporting the US Dollar.
- Silver bears are eyeing the neckline of a bearish H&S pattern around $63.00.
Silver (XAG/USD) shows minor losses at Monday’s early European session, amid a bearish near-term trend and with bears looking at a key support area around $63.00. Market expectations of a rate hike by the Federal Reserve (Fed) later in the week, coupled with dismal market sentiment amid elevated Oil prices, are boosting the US Dollar higher and posing headwinds for precious metals.
US Consumer Price Index (CPI) figures released on Friday beat expectations, especially the core reading, which rose at its fastest pace in the last four months in August. These figures cemented hopes that the US central bank will be forced to hike interest rates by 25 basis points at Wednesday’s meeting or risk a crisis of credibility that might send the USD into a tailspin.
Beyond that, the situation in the Middle East is complicating by the day, pushing Oil prices higher and setting the conditions for a global tightening pace, which is an unfavourable context for precious metals.
With the Strait of Hormuz closed for already six months, the Iran-backed Houthi militias have seized strategic areas to close the Strait of Bab el-Mandeb, the only alternative sea route to transport Crude from Gulf countries, and a drone attack has disabled the Saudi Arabian east-west pipeline. Brent Oil prices picked up to levels above $103.00, with the six-month high of $106.40 on sight.
Technical Analysis: Testing the neckline of an H&S pattern
XAG/USD trades at $63.90, holding a bearish near-term bias, with price action hovering above the neckline of a bearish Head & Shoulders (H&S) pattern. Momentum indicators on the daily chart reinforce the negative view, with the Relative Strength Index (RSI) capped below the 50 midline, and the Moving Average Convergence Divergence (MACD) histogram shows widening red bars.
The support area between the August 19 low at $62.19 and the September 2 low at $63.32 is likely to pose a serious challenge for sellers. Below this, the August 6 low at $60.87 will be targeted. The H&S's measured target lies just below the year-to-date low of $54.77.
On the upside, Friday's high at the mentioned $65.30 area is likely to test bulls. A break above that level shifts the focus towards the September 3 and 9 highs above $68,00, ahead of the August 28 high at $71.12.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.