Silver Price Forecast: Head-and-shoulders neckline comes under pressure
- Silver falls as traders prepare for the Fed’s September monetary policy meeting.
- A stronger US Dollar and elevated Treasury yields weigh on the non-yielding metal.
- XAG/USD tests the neckline of a bearish head-and-shoulders pattern.
Silver (XAG/USD) trades under pressure at the start of the week, with both the fundamental and technical backdrop pointing to further downside. At the time of writing, XAG/USD trades around $63.00, down roughly 2.40% on the day.
A stronger US Dollar (USD) and elevated US Treasury yields are weighing on the non-yielding metal, with attention firmly focused on the Federal Reserve’s (Fed) September 15-16 monetary policy meeting.
According to the CME FedWatch Tool, traders price in an 86% probability of a quarter-point rate increase. Higher rates are generally negative for silver as the metal does not offer interest or yield.
Rate hike bets gained traction after Friday’s US inflation data showed headline Consumer Price Index (CPI) accelerating to 0.4% MoM in August, while core CPI rose 0.3%. Rising Oil prices amid escalating tension in the Middle East are adding to the upside risks to inflation and putting more pressure on the Fed to raise borrowing costs.
Technical analysis
On the daily chart, XAG/USD is testing the neckline of a head-and-shoulders pattern near the 50-day Simple Moving Average (SMA) at $62. A daily close below this level would confirm the bearish formation and open the door to a deeper decline.
Momentum also leans bearish, with the Relative Strength Index (RSI) at 43 and the Moving Average Convergence Divergence (MACD) indicator below the zero line with red histogram bars.
If the neckline holds, Silver could consolidate before attempting a recovery toward the 100-day SMA at $66. A decisive break above this level would ease the immediate bearish pressure and bring the $70 psychological mark into focus, followed by the 200-day SMA near $73. On the downside, sustained selling below the 50-day SMA at $62 would expose the $60 psychological mark, followed by the $55 support level.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.