Silver Price Forecast: XAG/USD approaches oversold territory after CPI-driven sell-off
- Silver comes under heavy selling pressure as hotter-than-expected US inflation fuels Fed interest rate-hike bets.
- The technical outlook remains bearish as XAG/USD trades well below its key daily SMAs.
- The RSI approaches oversold territory, while the MACD signals persistent selling pressure.
Silver (XAG/USD) tumbles over 5.5% on Wednesday as stronger-than-expected US inflation data fuel expectations of further Federal Reserve (Fed) rate hikes, sending the US Dollar (USD) to a fresh year-to-date high. At the time of writing, XAG/USD trades around $55.78, its lowest level since July.
Data released by the US Bureau of Labor Statistics showed headline inflation rose to 3.7% YoY in September from 3.4% in August, beating expectations of 3.6%. Core inflation, which excludes food and energy, increased to 2.6% from 2.4%, above the 2.5% forecast. On a monthly basis, headline CPI rose 0.6%, as expected, while core CPI increased 0.3%, slightly above the 0.2% forecast.
According to the CME FedWatch Tool, traders now price in a 43% chance of a rate hike at the Fed’s October 27-28 meeting, up from 22% before the release, while the probability of a December rate hike stands near 95%.
Higher borrowing costs make interest-bearing assets more attractive, reducing demand for Silver, which generates no income. A stronger US Dollar adds to the pressure by making the metal more expensive for overseas buyers. Meanwhile, the technical picture suggests sellers remain firmly in control.
Technical analysis
On the daily chart, XAG/USD trades well below the 50-day, 100-day and 200-day Simple Moving Averages (SMAs), clustered between roughly $63 and $72. The latest leg lower brings Silver back toward July’s lows, which also mark its year-to-date lows.
Momentum indicators remain bearish. The Relative Strength Index (RSI) near 30 approaches oversold territory, suggesting the decline is becoming stretched, while the Moving Average Convergence Divergence (MACD) remains negative, reinforcing persistent bearish momentum despite the lack of strong trend strength suggested by the Average Directional Index (ADX) at 21.
On the topside, initial resistance lies at the $60 psychological mark, followed by the 100-day SMA at $63 and the 50-day SMA at $64. This moving-average cluster forms a firm resistance zone ahead of $68 and the 200-day SMA at $72.
On the downside, a sustained break below July’s lows in the $55.00-$55 area could open the door to a deeper decline toward $50. Holding this support zone could encourage a corrective bounce from oversold levels rather than a decisive trend reversal.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Silver FAQs
Why do people invest in Silver?
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.
Which factors influence Silver prices?
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.
How does industrial demand affect Silver 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.
How do Silver prices react to Gold’s moves?
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.