XAG/USD wants to top $28 as September Fed rate cut bets peaked

VaselineAugust 15, 2024

0 3 minutes read

XAG/USD wants to top as September Fed rate cut bets peaked

Silver price gathers strength to surpass $28.00 on firm prospect of Fed rate cut.
US inflation rose moderately in July.
Investors await monthly US retail sales data for July.

The price of silver (XAG/USD) is reaching a crucial resistance at $28.00 in the European session on Thursday. The white metal is looking to deliver more upside as investors expect the Federal Reserve (Fed) to look set to start cutting interest rates at its September meeting.

According to CME’s FedWatch tool, data on 30-day Federal Finds Futures prices show the Fed is certain to cut its key lending rates in September, but traders are divided on the size of the rate cuts.

Firm speculation for Fed rate cuts was further boosted by moderate growth in United States (US) consumer price index (CPI) data in July, which confirmed that progress in disinflation towards the bank’s 2% target is continuing . Annual headline and core CPI, which excludes volatile food and energy prices, fell to 2.9% and 3.2% respectively.

Growing expectations for Fed rate cuts weighed on US dollar (USD) and bond yields. The US Dollar Index (DXY), which tracks the greenback against six major currencies, underperformed slightly above a seven-month low of 102.16. US 10-year Treasury yields rise to near 8.45% but are still near weekly lows.

Meanwhile, investors await monthly US retail sales data for July due at 12:30 GMT. Economic data is expected to show retail sales rose 0.3 percent after being flat in June.

Silver Technical Analysis

Silver price bounces back after a negative divergence formation on the four-hour time frame, which forms when the momentum oscillator refuses to make lower lows while the asset continues. The 14-period Relative Strength Index (RSI) bounced back from 24.00 without breaking below the previous low of 20.00.

However, the aforementioned formation would be triggered if the white metal breaks above the immediate high drawn from the August 2 high of $29.23.

The asset is climbing above the 50-period exponential moving average (EMA) near $27.70, suggesting that the short-term trend is bullish.

The 14-period RSI is back near 60.00 and a decisive break above the same will trigger the upside momentum.

The 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 15, 2024

0 3 minutes read

Silver Technical Analysis

The silver four-hour chart

Frequently asked questions about silver

Vaseline

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