Silver Price Forecast: Rally puts head-and-shoulders pattern on ice

Silver (XAG/USD) price makes a U-turn on Wednesday and rises over 3.40% as the Greenback weakens, putting the confirmation of a ‘head-and-shoulders’ chart pattern on hold, which has formed since mid-August. The XAG/USD pair trades at $68.00 after rebounding off $65.31.

Price action shows the white metal is trading at an eight-day high of $68.30, rallying sharply and threatening to fail to confirm a bearish chart pattern. On its way north, the 100-day Simple Moving Average (SMA) was cleared at $67.17, exposing key technical resistance levels.

The Relative Strength Index (RSI) is bullish and has cleared the previous peak, indicating that buyers are gaining steam and putting upward pressure on Silver.

With that said, XAG/USD's first key resistance is the $70.00 figure. A decisive push can drive spot prices to the 200-day SMA at $73.00 before buyers launch an assault towards $ 75.00.

On the flip side, for a bearish continuation, XAG/USD must drop below the 100-day SMA at $67.18 and clear the September 8 low (LOD) of $65.54. Below is the $65.00 mark, followed by the September 2 swing low of $63.32.

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 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.

Author

Christian Borjon Valencia

FXStreet

Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.