XAG/USD rises to near $31 after higher than expected US inflation

VaselineOctober 10, 2024

0 3 minutes read

XAG/USD rises to near after higher than expected US inflation

Silver climbs to near $31.00 despite US inflation remaining warmer than expected in September.
Core CPI accelerated to 3.3% from estimates and August’s reading of 3.2%.
Traders expect the Fed to cut interest rates by 25 bps next month.

The price of silver (XAG/USD) is strengthening and rising to near $31.00 in the North American session on Thursday. The white metal saw strong buying following the release of United States (US) Consumer Price Index (CPI) data for September.

The CPI report showed that inflationary pressures rose at a faster pace than expected due to a strong rise in clothing prices. Also, medical and transport services have become more expensive.

Annual headline inflation fell at a slower-than-projected pace to 2.4 percent from 2.5 percent in August, as the impact of a sharp drop in the cost of energy was offset by a rise in food prices. Economists estimated that headline inflation rose 2.3 percent. The core CPI – which strips out volatile food and energy prices – accelerated to 3.3% ahead of estimates and the first release of 3.2%. Monthly headline and core inflation rose faster than expected.

The white metal is struggling for direction as market participants take time to digest inflation numbers and adjust expectations for the Federal Reserve’s (Fed) interest rate outlook for the rest of the year. According to the CME FedWatch tool, a 25 basis point (bps) rate cut in November is widely expected.

Meanwhile, the US dollar (USD) is also showing volatile moves following the release of US inflation data. Going forward, investors will focus on US producer price index (PPI) data for September due out on Friday.

Silver Technical Analysis

Silver price weakens after a breakdown of the Double Top formation on a four-hour time frame. The aforementioned pattern was activated after the asset fell below the horizontal support drawn from the September 30 low around $31.00, which is acting as a resistance now. A bearish cross represented by the 20- and 50-period exponential moving averages (EMA) at $31.60 suggests weakness ahead.

The asset has temporarily found support near the 200 EMA, which is trading around $30.50.

The 14-day Relative Strength Index (RSI) provided a range-reversing move, suggesting bearish momentum.

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.

VaselineOctober 10, 2024

0 3 minutes read

Silver Technical Analysis

Silver Four Hour Chart

Frequently asked questions about silver

Vaseline

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