Gold's plunge: Is Silver next?

Whether it is time to book profits in silver depends on your individual circumstances, risk tolerance, and investment goals.

However, there are a few factors to consider that might suggest it could be a best time to take some profits now.

Strengthening of the US Dollar

Inverse relationship: Silver, like other precious metals, tends to have an inverse relationship with the U.S. dollar. When the U.S. dollar strengthens, silver becomes more expensive for holders of other currencies, reducing demand and leading to lower prices. This is especially true when the U.S. Federal Reserve raises interest rates or tightens monetary policy, as it boosts the dollar’s appeal.

Fed policy: The Federal Reserves interest rate hikes are often a catalyst for silver price declines. Higher rates make holding precious metals less attractive.

Strong economic data and risk appetite

Shift to risk on assets: Silver like gold, is often seen as a safe-haven asset during times of uncertainty or market volatility. When economic conditions improve, and investor confidence rises, there is less demand for safe-haven assets, which can lead to a fall in silver prices as investors shift capital into riskier assets like stocks.

Stock market rally: If the stock market is performing well and investor sentiment is positive, silver may underperform as people move funds into equities, which have the potential for higher returns.

Decreased inflation fears

Lower inflation expectations: Silver along with gold, is often viewed as a hedge against inflation. If inflation expectations fall, demand for precious metals as an inflation hedge diminishes. This could result in silver prices declining.

Strong economic data: If inflation fears subside due to stronger-than-expected economic growth or central bank actions, silver prices may decline.

Low geopolitical tensions

Less safe-haven demand: Silver (like gold) tends to rise during times of geopolitical uncertainty or crises (wars, financial crises or pandemics). If geopolitical tensions subside or global risks diminish, silver prices may fall as demand for safe-haven assets weakens.

Stability in precious metals: During periods of global stability and peace, investors may focus more on growth-oriented investments (stocks, real estate) rather than precious metals, leading to a fall in silver prices.

Decline in Gold prices

Correlation with Gold: Silver tends to move in tandem with gold, albeit with more volatility. If gold prices fall due to factors such as rising interest rates or a stronger U.S. dollar, silver often follows suit and declines as well.

Gold-Silver ratio: When the gold-silver ratio rises significantly (gold outperforms silver) silver might face downward pressure as investors prefer the perceived safety and value of gold.

It is important to remember that these factors can interact in complex ways, and their impact on silver prices can vary over time. Keeping informed about these factors and staying updated on market news and analysis can help you better understand potential downward trends in silver prices.

Trading strategies for Silver spot (XAG/USD)

Silver Spot (XAG/USD)

Given that spot silver (XAGUSD) reached a high near the $29.900 range during the morning US session and is now experiencing a decline, several factors could be contributing to the price pullback. This level could be a good opportunity to sell Silver (XAGUSD).

If the price of silver declines, it could test today’s low around $29.495. A break below this support level might push prices toward the 5-day moving average near $29.317. If the decline continues, silver could potentially fall to yesterday’s low at $28.868. A further drop below this point could extend the decline to the December 19th low around $28.737.