XAG/USD climbs near $28 with US inflation in focus

VaselineAugust 12, 2024

0 3 minutes read

XAG/USD climbs near with US inflation in focus

Silver price rises to near $28 on several tailwinds.
Market speculation for big Fed interest rate cuts in September has fallen significantly.
Investors await US CPI for July for further guidance on interest rates.

The price of silver (XAG/USD) is rising to near $28.00 in the North American session on Monday. The white metal is gaining amid geopolitical risks and firm speculation that the Federal Reserve (Fed) will begin cutting interest rates at its September meeting.

Conflicts between Iran and Israel in the Middle East are expected to escalate further as the former will retaliate for the assassination of Hamas leader by an Israeli airstrike in Tehran. Silver’s appeal as a safe haven is improving amid geopolitical uncertainty.

Meanwhile, market speculation for Fed rate cuts in September remains solid, but uncertainty about the size has deepened significantly. According to the CME FedWatch tool, 30-day Federal Funds Futures price data shows traders see a 46.5% chance that interest rates will be cut by 50 basis points (bps) in September. The probability of a 50bp rate cut has dropped significantly from 85% a week ago.

A sharp decline in Fed rate cut prospects provided some support to the US dollar (USD) and bond yields. The US Dollar Index (DXY), which tracks the value of the greenback against six major currencies, is holding above 103.00. US 10-year Treasury yields are near 3.95%.

Going forward, investors will focus on United States (US) consumer price index (CPI) data for July, which will be released on Wednesday. Headline and core CPI, which strips out volatile food and energy prices, are expected to decelerate to 2.9% and 3.2% respectively.

Silver Technical Analysis

The price of silver is rising to near the ascending boundary of the Falling Channel formation in a four-hour time frame. Typically, investors view pullbacks in the aforementioned chart pattern as selling opportunities by market participants. The asset remains below its 200-period exponential moving average (EMA) near $28.76, suggesting the overall outlook is bullish.

The 14-period Relative Strength Index (RSI) is trying to break above 60.00. Holding above the same would improve Silver’s appeal.

Silver Four Hour Chart

Frequently asked questions about silver

Silver is a highly traded precious metal among investors. It has historically been used as a store of value and medium of exchange. Although less popular than gold, traders can turn to silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during periods of high inflation. Investors can buy physical silver, in coins or bullion, 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 cause the price of silver to escalate due to its safe-haven status, although to a lesser extent than gold. As a non-yielding asset, silver tends to rise with lower interest rates. Its movements also depend on how the US dollar (USD) behaves, as the asset is valued in dollars (XAG/USD). A strong dollar tends to keep silver prices at bay, while a weaker dollar is likely to propel prices higher. 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, especially in sectors such as electronics or solar energy, because it has one of the highest electrical conductivity of all metals – more than copper and gold. An increase in demand can raise prices, while a decrease tends to lower them. Dynamics in the US, Chinese and Indian economies may also contribute to price fluctuations: for the US and especially China, their large industrial sectors use silver in various processes; in India, consumer demand for the precious metal for jewelry also plays a key role in pricing.

Silver prices tend to follow the movements of gold. When gold prices rise, silver usually follows suit, as their safe haven asset status is similar. The gold/silver ratio, which shows the number of ounces of silver needed to equal the value of one ounce of gold, can help determine the relative valuation between both metals. Some investors may view a high ratio as an indicator that silver is undervalued or that gold is overvalued. Conversely, a low ratio could suggest that gold is undervalued relative to silver.

VaselineAugust 12, 2024

0 3 minutes read

Silver Technical Analysis

Silver Four Hour Chart

Frequently asked questions about silver

Vaseline

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