SILVER Signals & Technical Analysis
ABOUT THE SILVER (XAG/USD)
Silver is a global standard for the trade of precious metals. Available under the symbol XAG/USD, it is available for trade as a CFD product. Silver’s value is determined largely by supply and demand. Institutional investors typically view silver as a hedging mechanism, in a similar fashion to gold. Australia, China, and the U.S. hold the largest silver reserves among developed economies.
What Determines the Silver Exchange Rate?
- US FED Monetary Policies: The Federal Reserve controls the supply of money in the market, to keep the economy on track. A dovish policy, which is also known as expansionary policy, weakens the currency. In contrast, a hawkish monetary policy (contractionary policy) strengthens the currency, USD.
- Economic Events: Any movement in the US economic events determines the exchange rates. Top of the line economic events include GDP, Employment Change, Industrial Production, and Consumer Price Index. Better than forecast data hikes the demand for and impacts the value of the US Dollar, causing a drop in the Silver exchange rate and vice versa.
- Silver & Dollar: Since Silver is mostly priced in US dollars, it is, to a great extent, inversely correlated with the dollar. When there is a broad weakening of the dollar against other currencies, these currencies automatically have more gold purchasing power (directly since gold is priced in dollars). The effect is that the demand for gold increases, which in turn raises the gold price up to the point where it reaches a temporary state of equilibrium, so to speak.
- Political announcements & natural disasters – Besides scheduled economic events, political elections, new systems, wars, terror incidents, and natural calamities, etc., can all cause severe variations within the Silver market
Silver Price Factors
- The U.S Dollar - The price of Silver has close corelation with the demand and supply of the US dollar. Both medium and long term perfomance of Silver is affected by fluctuations in the price of the greenbuck. Exchange rates and the price of silver maintain a negative correlation.
- Non farm employment data have an impact on Silver’s price perfomance. Just in case the number of non-farm jobs surges, Silver’s price will drop. If there is a decline in the number of non-farm jobs, Silver’s price rises.
- Monetary policies - Countries using silver as a backing for its monetary supply tend to affect the price of the metal whenever they adopt new monetary policies. If interest rates drop, money supply increases and therefore increases the price of Silver.
- Political unrest and turmoil - Wars, civil unrest and turmoil have significant impact on the price trends of Silver. One of the primary reasons is because investors will accumulate metals such as Silver and Gold for as a caution against inflation and thereby result to increasing demand. Which drives the price of Silver high.
- Gold Prices - There is a historical relationship corelation between the price of silver and gold. Generally, they trade in sync. Such a relationship has also been noted across Bitcoin and Ethereum charts. Silver prices will tend to follow the price of Gold, just as the price of Ethereum will tend to follow the direction of Bitcoin.
- Interest rates - Interest rates indicate the overall market condition. Majority of investors opt for interest payments as they hold on Silver for the long term. Therefore, the relationship between Silver and interest rates is inversely proportional.
Silver Recent Events
In June 2022, CPI saw a 9.1% and 9.3% rise year-on-year in the U.S. and UK, respectively. High inflation devalues currency, prompting central banks to raise interest rates. It also gives consumers and businesses less spending power, meaning that less growth is made and GDP contracts; telltale signs of an impending recession if central banks don’t take significant action.In the US, inflation has primarily been driven by a huge boost to the monetary supply; in the UK, restrictions on gas supply due to the conflict in Ukraine have caused energy prices to soar, having a massive impact on inflation.
Fears of an Imminent Recession
Talks of recession have been on the cards for both the U.S. and UK recently. In July 2022, the U.S. saw two consecutive falls in GDP in the first two quarters, a widely-accepted hallmark of a technical recession.Meanwhile, in August 2022, the BoE predicted a deep recession in the UK, starting in the last quarter of 2022 and lasting 15 months. Both will have adverse effects on the currencies. As the UK looks to perform worse than the US, which is still showing signs of a strong labor market, this could cause GBP/USD to fall as the pound weakens and the dollar remains strong.
Rising Interest Rates
With inflation rising, the BoE and Fed are keen to push inflation back down to their targets of 2%. As a knock-on effect of the pandemic, both central banks have been steadily raising interest rates to calm consumer spending and lending. Everything else being equal, higher interest rates cause a currency to get stronger as foreign investment floods in to realize interest rates higher than their native banks.
The Coronavirus Pandemic
One of the root causes of the recent rate hikes, high inflation, and impending recession was the Coronavirus pandemic. As millions stayed home, central banks pumped billions into the economy, devaluing their currencies while increasing the flow of money to invite strong spending. Combined with supply chain issues and record levels of new job openings as a result of reopening economies, inflation has soared to heights not seen in decades.
The XAG/USD is traded in amounts denominated in the US Dollar. Standard lot Size: 100 Ounces. One pip in decimals 0.01 Pip Value: $1
Profit/Loss = (Bid Price – Ask Price) X Contract Size X Number of Lots
SILVER - FAQs
The growing demand for silver in industrial applications has bolstered the value of this precious metal. For those just entering the realm of precious metals trading, silver can be an ideal starting point due to its relative accessibility and familiarity.
The US Dollar Index (DXY) has experienced a notable resurgence, rising to just below 103.70 as investors react to heightened geopolitical volatility by seeking shelter in safe-haven assets like Silver or Gold. Warnings issued by the US Ambassador to China in the event of providing lethal military aid to Russia for its invasion of Ukraine have contributed to more bearish market sentiment. Additionally, three projectiles launched by North Korea into Japan's Exclusive Economic Zone (EEZ) have exacerbated matters further.
In general, there is an inverse correlation between the U.S. Dollar and the price of silver. Historically, a strong Dollar has exerted downward pressure on silver prices. However, astute investors often utilize periods when the Dollar is strong to acquire silver at discounted prices. It is worth noting that the USD hit a 20-month all-time high in September last year, and has been correcting downwards since due to the looming recession. As a result, more people are seeking out Silver as their safe haven.
Government policies Interest rates, US dollar strength, Inflation, national and global economic trends, microeconomic trends, supply and demand, technology and silver scrap are some of the factors affecting the price of the silver-dollar pair.