Silver Price Forecast: XAG/USD declines below $27 as demand concerns escalate

• Silver price weakens as the US Dollar and bond yields recover.

• The Fed is expected to cut interest rates by 50 bps in September.

• Investors’ concerns over Silver’s demand as a metal have deepened.

Silver price (XAG/USD) skids below the crucial support of $27.00 in Tuesday’s European session. The white metal weakens as investors worry about the growing demand for Silver as a metal, which has applications in various industries, such as Electric Vehicles (EV), Renewable Energy, wires and cables, etc.

Market participants remain concerned over fears of a global slowdown as major economies face a slump in domestic demand. After China and the Eurozone, investors worry that the United States (US) could enter a recession due to the long maintenance of a restrictive monetary policy framework by the Federal Reserve (Fed). This has boosted expectations that the Fed will announce rate cuts sooner rather than later.

Financial markets expect the Fed to cut its key borrowing rates by 50 basis points (bps) to 4.75%- 5.00% in the September meeting and reduce interest rates by more than 100 bps this year.

Meanwhile, higher bond yields and a decent recovery in the US Dollar (USD) have also weighed on the Silver price. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, climbs to near 103.00 after recovering from more than a six-month low near 102.15. 10-year US Treasury yields jump to near 3.84% Historically, higher yields on interest-bearing assets reduce the opportunity cost of non-yielding assets, such as Gold.

Silver technical analysis

Silver price drops sharply after facing stiff resistance near the 50-day Exponential Moving Average (EMA), which trades around $27.57. The near-term outlook of the Silver price has become bearish as the 14-day Relative Strength Index (RSI) has shifted into the 20.00-60.00 range from the bullish range of 40.00-80.00. The momentum has leaned on the downside and any pullback move will be considered a selling opportunity by the market participants.

On the downside, the horizontal line plotted from May 2 low near $26.00 will be key support for the Silver price bulls.

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.