Silver Price Forecast: XAG/USD recovers strongly above $30 as Fed dovish bets swell
- Silver price bounces back sharply to near $30.30 as market expectations for the Fed to cut interest rates in June swelled.
- Fed Powell warned that Trump tariffs could lead to higher inflation and unemployment.
- The demand outlook for Silver as an industrial metal has weakened.
The price of silver (XAG/USD) is up almost 2.4%, nearing $30.30, during North American trading hours on Monday. The white metal bounces back strongly after a bloodbath on Thursday and Friday as traders have become increasingly confident that the Federal Reserve (Fed) could cut interest rates in the June meeting.
According to the CME FedWatch tool, traders have completely pared their bets, favoring an interest rate reduction in June.
Traders have raised Fed dovish bets as Fed Chair Jerome Powell has signaled concerns over the United States (US) economic outlook after President Donald Trump swept reciprocal tariffs on all its trading partners.
"We face a highly uncertain outlook with elevated risks of both higher unemployment and higher inflation," Powell said on Friday.
However, the industrial demand for Silver has turned sluggish as Trump's tariffs have stemmed concerns over the global economic outlook, especially in China, which has been slapped with 54% tariffs.
Silver has applications in various industries, such as Electric Vehicles (EV), electronics, and solar energy. Given that China is the manufacturing hub of the world, a higher degree of tariffs on them impacts its manufacturing sector, which eventually hits Silver’s demand.
Theoretically, heightening global economic tensions increase the appeal of precious metals, such as Silver, but fears of a slowdown in its industrial demand weighs on its price.
Silver technical analysis
Silver price recovers to test the breakdown region of the Ascending Triangle chart formation near its upward-sloping border around the August 8 low of $26.45. The horizontal resistance of the above-mentioned chart pattern is plotted from the October 22 high of $34.87
Technically, the breakdown of the Ascending Triangle pattern indicates results in a volatility expansion, which leads to higher volume and formation of wide ticks.
The 14-day Relative Strength Index (RSI) rebounds slightly after turning oversold around 27.00. This indicates that the recovery move appears to be a short-lived one, and investors should brace for more weakness.
Looking down, the August 8 low of $26.45 will act as key support for the Silver price. While, the April 4 high of $32.00 will be the major barrier.
Silver daily chart
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.
Author
Sagar Dua
FXStreet
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.
