Silver (XAG/USD) enjoyed a occasional green session on Thursday and reading too much into it would be a mistake. The metal rebounded from a session low near 56.35 shortly after the US data was released, briefly touched near 59.00 before recovering to around 58.00, up about 0.8% on the day. Against the backdrop of the wreckage of the last few months, a single day up looks more like a sell-out mechanic than a turn-starter.
Reflection, not base
Several forces have combined to raise Silver levels throughout the day. Thursday’s stable gross domestic product (GDP) and growth in capital goods orders pointed to stable industrial demand; the ongoing inflation printing cooled the most aggressive bets on interest rate increases; and a softer dollar during the day gave the metal some breathing room. Silver also entered the day heavily oversold, with a stretch condition that encourages trading.
The sequel told the true story. Silver completed most of the jump within a few hours; the daily Stochastic Relative Strength Index (Stoch RSI) is in the mid-range near 48, rather than rising sharply; and the short-term reading is already repeating itself. Such bounces are a feature of downtrends, not evidence of their expiration.
The Fed is still a problem
The regime that crushed Silver has not changed at all. The hawkish Federal Reserve (Fed) kept its key interest rate at 3.75% last week, with forecasts pointing to higher rates for longer and with markets pricing in at least one more hike rather than the cuts they expected at the beginning of the year. Real yields rose and remained elevated.
This is poison for a metal that produces no profit. While cash and bonds offer real returns, the underpriced silver has to compete on price alone, and it keeps losing. Thursday’s data, robust growth amid persistent inflation and no prospect of cuts, simply reinforced the backdrop that sent prices of the metal plummeting from its year-to-date high above 96.00.
An industry everyone loved, developed
Silver did not fall into a vacuum; fell off the bubble. At the beginning of this year, this metal became the market’s favorite story and was auctioned both as a hedge against inflation and as the so-called metal AI for apply in semiconductors and data centers, with a immense unthreatening haven premium imposed during the Middle East conflict. Records were achieved with this combination.
Each of these pillars has since given way. The US-Iran peace framework brought oil back to pre-conflict levels and exhausted the war bonus; Inflation hedging issue reels as Fed proves it has no intention of blinking; and a wave of forced liquidations earlier in the year revealed just how crowded the trade had become. What remains is the metal still looking for a bottom, and Thursday’s rebound is more noise than signal.
Levels to watch
Support: The recent low near 55.50 is a direct line in the sand; a daily close below opens the path towards the lower 50s, with little clear support until then.
Resistance: Quickly deflects facial resistance. The 59.00-60.00 zone, near Thursday’s intraday highs, is the first real hurdle, and the metal will need to regain its moving averages higher in the 60s and 70s before any talk of a trend change becomes credible.
Deviation: lower. The trend, macro backdrop and positioning all point in the same direction and until silver is able to hold a base and recover from the broken levels, rallies are more about selling than chasing. Treat Thursday’s green candle as a pause in the decline, not the end.
XAG/USD daily chart
Silver FAQs
Silver is a precious metal that investors like to trade. Historically, it has been used as a store of value and a medium of exchange. Although less popular than gold, investors may turn to silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during periods of high inflation. Investors can buy physical silver in coins or bars, or trade it through vehicles such as Exchange Traded Funds, which track its price on international markets.
Silver prices can fluctuate due to many factors. Geopolitical instability or fear of a deep recession may push silver prices higher due to its safe-haven status, although to a lesser extent than gold. As a non-yielding asset, silver tends to rise at lower interest rates. Its movements also depend on the behavior of the US dollar (USD) when the asset is priced in dollars (XAG/USD). A robust dollar tends to keep the price of silver at bay, while a weaker dollar will likely push prices higher. Other factors such as investment demand, mining supply – there is much more silver than gold – and recycling rates can also influence prices.
Silver is widely used in industry, especially in sectors such as electronics and solar energy, because it has one of the highest electrical conductivities of all metals – greater than copper and gold. An enhance in demand can enhance prices, while a decrease usually lowers them. The dynamics of the economies of the United States, China and India can also contribute to price fluctuations: in the case of the United States and especially China, immense industrial sectors apply silver in various processes; in India, consumer demand for precious metals for jewelry production also plays a key role in pricing.
Silver prices usually follow the movements of gold. When gold prices rise, silver tends to follow suit because their status as safe-haven assets is similar. The gold-to-silver ratio, which shows the number of ounces of silver needed to equal the value of one ounce of gold, can facilitate determine the relative valuation of the two metals. Some investors may view a high ratio as an indicator that silver is undervalued or gold is overvalued. On the contrary, a low ratio may suggest that gold is undervalued relative to silver.
