Silver failed to capitalize on the overnight up move and retreated slightly on Wednesday.
The situation favors the bulls and supports the prospect of buying on dips.
A convincingly breakout and acceptance below $33.00 would negate the positive outlook.
Silver (XAG/USD) attracted some selling during Wednesday’s Asian session, eroding a portion of the previous day’s strong gains. The white metal is currently trading in the $33.65-33.60 area, down 0.30% on the day, although downside appears limited due to the bullish technical situation.
XAG/USD showed some resilience last week below the $33.00 mark and the 100-period simple moving average (SMA) on the 4-hour chart. The subsequent rise and the positive oscillators on the daily chart validate the positive outlook. Therefore, any further intraday declines may be seen as buying opportunities and remain limited around the above-mentioned mark.
However, a convincingly breakout could trigger some technical selling and drag XAG/USD below last week's low, around the $32.65 area, testing the $32.00 round number mark. This is followed by support near the $31.80 area (March 11 low), which, if broken, could shift the bias in favor of the bears and expose the monthly low, around the $31.10 area.
On the other hand, bulls may wait for a break above the $33.80 area, or the weekly high hit earlier on Wednesday, before making fresh bets. XAG/USD could recapture the $34.00 mark and climb further to multi-month highs around the $34.20-34.25 area hit on March 18, and then head towards multi-year highs around the $34.85 area hit in October.
Silver is a precious metal that is heavily traded among investors. It has been used throughout history as a store of value and a medium of exchange. Although not as popular as gold, traders may turn to silver to diversify their portfolios, as it has intrinsic value, or as a potential hedge during periods of high inflation. Investors can buy physical silver in the form of coins or bars, or trade it through instruments such as exchange-traded funds (ETFs). ETFs track the price of silver on the international market.
The price of silver can be affected by a variety of factors. Geopolitical instability or fears of a deep recession could cause the price of silver to rise due to its safe-haven status, although not as much as gold. As a non-yielding asset, silver tends to rise with lower interest rates. Its movements also depend on the performance of the U.S. dollar (USD), as assets are priced in dollars (XAG/USD). A stronger dollar tends to suppress silver price gains, while a weaker dollar can push silver prices higher. 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, especially in areas such as electronics or solar energy, as it has one of the highest conductivity of all metals, higher than copper and gold. A surge in demand can increase prices, while a drop in demand tends to reduce prices. The dynamics of the US, Chinese, and Indian economies can also lead to price fluctuations: for the US and especially China, their large industrial sectors use silver in various processes; in India, consumer demand for gold jewelry also plays a key role in determining gold prices.
The price of silver tends to follow the movements of gold. When the price of gold rises, silver usually follows suit, as their status as safe-haven assets is similar. The gold/silver ratio shows the number of ounces of silver required to equal the value of one ounce of gold and may help determine the relative valuation between the two metals. Some investors may view a high ratio as an indicator that silver is undervalued or gold is overvalued. Conversely, a low ratio may indicate that gold is undervalued relative to silver.