Silver Price Forecast: XAG/USD trades with caution near $38 as global trade tensions cool down
- Silver price struggles for firm footing as the US-EU tariff deal has diminished fears of global trade disruption.
- Trade talks between the US and the EU will resume on Tuesday.
- The Fed is expected to leave interest rates steady on Wednesday.
Silver price (XAG/USD) trades cautiously near its weekly low around $38.00 during the Asian trading session on Tuesday. The white metal struggles to gain ground as its safe-haven demand has diminished, following the announcement of a trade agreement between the United States (US) and the European Union (EU).
Over the weekend, both sides of the Atlantic confirmed that they have reached a framework under which Washington will charge 15% tariffs on imports from Brussels. The announcement of the trade framework has diminished fears of a damaging global trade war.
Meanwhile, investors await the outcome of high-level trade talks between the US and China, which are taking place in Stockholm. The officials from both economies are scheduled to resume trade discussions on Tuesday, which started on Monday.
According to a report from Reuters, the US and China are working to resolve “key trade and technology disputes”, with China seeking relief from US tariffs and curbs on tech exports.
The safe-haven appeal of the Silver price would ease further if both economies manage to resolve trade disputes. However, its demand as an industrial input will increase as trade harmony would improve the business sentiment of Chinese business owners.
This week, investors will also focus on a slew of US economic data and the Federal Reserve’s (Fed) monetary policy announcement on Wednesday. According to the CME FedWatch tool, the Fed is certain to leave interest rates steady in the range of 4.25%-4.50%.
Higher interest rates by the Fed for longer bode poorly for non-yielding assets, such as Silver.
Silver technical analysis
Silver price corrects to near the 20-day Exponential Moving Average (EMA) around $38.00 from its recent highs of $39.53 posted last week.
The 14-day Relative Strength Index (RSI) falls below 60.00, suggesting that the bullish momentum has been faded.
Looking down, the June 18 high of $37.32 will act as key support for the major. On the upside, the June 23 high near $39.53 will be a critical hurdle for the pair.
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.