Silver forecast: Could XAG/USD lose its lure?

Gold and silver could fall back as peace talks regarding the Ukraine conflict could sap demand for safe haven assets. And given signs that China’s physical gold appetite has cooled - as indicated by Hong Kong’s recent gold exports data to China - then this could point to a more subdued gold and silver forecast. But the trend has been positive for both metals, especially silver of late. So, until we see a clear reversal signal, it might be too early to speculate on its downside potential. The long-term view remains bullish, regardless of what silver does in the short-term, given expectations of increased industrial demand amid drive towards electrification of vehicles and other technological applications.

 

Russia-Ukraine peace could sap demand for gold and silver 

 

We have seen some positive news regarding the Ukraine-Russia peace process this week, coming hot on the heels of the recent ceasefire in Gaza and the extension of the trade war truce between China and the US. These developments should lessen the appeal of haven assets, you’d think. However, this hasn’t been reflected in prices of gold and silver in a meaningful way yet. Yes, we have seen a bit of volatility in these metals but on the whole, they have refused to decouple from equity indices. The softening of US dollar and bond yields as a result of weaker US data has certainly played a part in the metals’ resilience. But could we soon witness a more volatile environment for gold and silver? Could prices drop more sharply than has been the case in other bouts of selloffs this year?

 

Silver forecast: XAG/USD technical analysis

 

Silver remains in a strong bullish trend, but it has recently found sturdy resistance around the $53.60 to $54.50 area, where the rally stalled at the end of October, and again in the middle of this month. Today, silver bulls again tested this area but were unsuccessful at breaking through it and prices fell, turning red on the day. Hints of a potential triple top there. But the bears will need to see downside follow-through before things become bearish. Until that happens, this should be viewed a mere pause. Silver’s slight struggles at these levels come after the metal staged a remarkable rally since April when everything bottomed. Its more recent volatility has been mirrored in equity markets and copper, where valuation and growth concerns have been matched with central bank easing optimism. 

 

 

I will turn bearish on silver if the metal were to eventually go and hold below the key $50 area. That level is super important given it also roughly ties in with the 2011 peak of $49.76. A failure to hold above this zone would therefore be a bearish scenario. 

 

Some important levels to watch ahead of the $50 zone include: 

 

• $52.46, marking last week’s high
• $51.75, Tuesday’s high which was taken out cleanly on Wednesday
• $50.85, the high from Friday and point of origin of the most recent breakout

 

So, is silver carving out a near-term top here? That’s the million dollar question but I will need to see more evidence of a top or a reversal pattern before I can confidently call it. For now, silver is displaying tentative bearish signs which should be treated with respect. 

 

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R