Silver (XAG/USD) rally was capped a few cents below the $55.00 level on Wednesday, pulling lower on profit-taking. However, downside attempts remain limited amid cautious markets, which is keeping the precious metal supported above the $52.50 area, not far from four-week highs.
The fundamental context remains supportive for precious metals, as escalating trade tensions between the US and China continue to fuel safe-haven demand. Beyond that, the market is practically fully pricing a rate cut by the Fed in late October, which is adding bearish pressure on the US Dollar.
Technical analysis: Consolidating gains within a broader bullish trend
Silver is in a period of consoñlidatiion after the last bullish run to the $55.00 area. The 4-hour RSI is showing some bearish divergence, but the pair appears unlikely to undergo a significant correction unless the fundamental background undergoes a substantial change.
To the downside, support levels at 52.43 (Intraday low) and at the bottom of the ascending channel, now around Wednesday’s low in the $51.25 area, are likely to hold bears. Below here, negative pressure would increase, aiming for the October 14 low, at $50.30.
Upside attempts are likely to meet resistance at the channel top, in the area of $54,00 and Wednesday’s high, at $54.85. Further up, the 161.8% Fibonacci extension of the October 9-14 rally, at $56.65 emerges as a plausible target.
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.