- Silver prices are under pressure to extend their uptrend above $30.00 amid rising US bond yields.
- The Fed appears ready to cut interest rates in September.
- Investors are eagerly awaiting US core PCE inflation data for July.
Silver price (XAG/USD) is struggling to extend its uptrend above the psychological resistance of $30.00 in Tuesday’s New York session. The short-term outlook for the white metal remains optimistic as the Federal Reserve (Fed) is widely expected to start cutting interest rates from the September meeting. At the same time, investors are looking for clarity on the likely extent of the Fed’s rate cut.
According to the CME FedWatch tool, 30-day federal funds futures price data shows that the probability of a 50 basis point (bp) rate cut in September is 28.5 percent, while the rest prefer a 25 bp cut.
Meanwhile, San Francisco Fed President Mary Daly said in her interview with Bloomberg on Monday that she would support a rate cut of between a quarter and one percent in September, but left open the possibility of a larger cut if the labor market worsens.
Firm optimism about a Fed rate cut in September continues to weigh on the US dollar and bond yields. The US dollar index (DXY), which tracks the greenback’s value against six major currencies, sees further downside below the year’s low of 100.53. US 10-year Treasury yields are rising to nearly 3.86% amid caution ahead of key US Personal Consumption Expenditure Price Index (PCE) data for July, due to be released on Friday.
In general, higher yields on interest-bearing assets do not bode well for non-interest-bearing assets like silver, as they reduce the opportunity cost of investing in those assets.
Technical Analysis of Silver
Silver prices rallied sharply after solid buying interest was seen near the August 1 high of $29.16 within four hours. The white metal is likely to extend its uptrend to the July 11 high of $31.75. The upsloping 20-day exponential moving average (EMA) near $29.70 justifies further upside.
The 14-period Relative Strength Index (RSI) is fluctuating in the bullish range of 60.00-80.00, indicating strong upside momentum.
Silver four-hour chart
Frequently asked questions about silver
Silver is a precious metal that is widely traded among investors. It has historically been used as a store of value and a medium of exchange. Although it is less popular than gold, traders can turn to silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge in times of high inflation. Investors can buy physical silver in coins or bars, or trade it through instruments such as exchange-traded funds that track its price on international markets.
The price of silver can change based on a variety of factors. Geopolitical instability or fear of a severe recession can drive up the price of silver due to its safe-haven status, although to a lesser extent than gold. As a non-yielding investment, silver tends to rise when interest rates are lower. Its movements also depend on how the U.S. dollar (USD) behaves, as the asset is valued in dollars (XAG/USD). A strong dollar tends to keep the price of silver in check, while a weaker dollar is likely to drive prices higher. Other factors such as investment demand, mining supply—silver is much more common than gold—and recycling rates can also affect prices.
Silver is widely used in industry, especially in areas such as electronics or solar energy, because it has one of the highest electrical conductivities of any metal – higher than copper and gold. A surge in demand can raise prices, while a decline tends to lower them. The dynamics of the US, Chinese and Indian economies can also contribute to price fluctuations: in the US and especially in China, silver is used in various processes in major industries; in India, consumer demand for the precious metal for jewelry also plays an important role in pricing.
Silver prices tend to follow the movements of gold prices. When gold prices rise, silver usually follows the trend as they share a similar status as safe haven assets. The gold/silver ratio, which indicates the number of ounces of silver required to equal the value of one ounce of gold, can help determine the relative value of both metals. Some investors consider a high ratio to be an indicator that silver is undervalued or gold is overvalued. On the contrary, a low ratio could indicate that gold is undervalued compared to silver.
