Silver Price Forecast: XAG/USD extends upside to near $29.80 on renewed safe-haven demand

Silver price climbs to near $29.80 amid renewed geopolitical tensions.
US Joe Biden discusses possible ways to strike on Iran’s nuclear facility.
Investors expect the Fed to leave interest rates unchanged in the policy meeting this month.

Silver price (XAG/USD) rises further to near $29.80 in Friday’s European session. The white metal gains as demand for safe-haven assets has improved on renewed geopolitical tensions. According to reports from Axios, US President Joe Biden discussed possible strikes on Iran’s nuclear facilities with his national security team, with few weeks remaining for President-elect Donald Trump to take administration.

Axios reported that White House National Security Advisor Jake Sullivan presented President Biden with options for a potential US attack on Iran's nuclear sites. Historically, demand for safe-haven assets, such as Silver, improves in heightened geopolitical uncertainty.

Additionally, prospects of high inflation under the administration of Trump, as he is expected to tighten immigration controls, elevate import tariffs, and lower taxes, have also strengthened safe-haven demand. Silver tends to face high demand as investors use it as a hedge against inflation.

Meanwhile, the US Dollar (USD) edges down on Friday after a sharp rally on Thursday, with investors focusing on the US ISM Manufacturing PMI data for December, which will be published at 15:00 GMT. The Manufacturing PMI is estimated to have remained unchanged at 48.4, suggesting that factory activities contracted steadily.

10-year US Treasury yields drop to near 4.55% even though the Federal Reserve (Fed) is certain to pause the current policy-easing spell in the policy announcement on January 29.

Silver technical analysis

Silver price rebounds to near the 20-day Exponential Moving Average (EMA), which trades around $29.85. However, the outlook of the white metal remains bearish till it stays below the upward-sloping trendline, which is plotted from the February 29 low of $22.30 on a daily timeframe.

The 14-day Relative Strength Index (RSI) rebounds above 40.00. A bearish momentum would come to an end if it sustains above that level.

Looking down, the September low of $27.75 would act as key support for the Silver price. On the upside, the 50-day EMA around $30.90 would be the barrier.

Silver daily chart

Silver FAQs

Why do people invest in Silver?

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.

Which factors influence Silver prices?

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.

How does industrial demand affect Silver 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.

How do Silver prices react to Gold’s moves?

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.

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