The silver price has bounced back in the past few days as investors focus on the relatively weak US dollar and the energy deal in the US. The XAG/USD price rose to a high of $20.50, the highest point since June 30th of this year. It has risen by about 12% from the lowest point in July. This price action mirrors that of gold, which has risen by about 5.70% from the July low.
The silver price has a close inverse correlation with the US dollar. Besides, the metal is widely traded using the currency. Therefore, silver tends to retreat when the US dollar rises. This is exactly what happened in July when the US dollar index (DXY) surged to a two-decade high of $109.40. At the time, silver dropped to a low of $18.50, the lowest level since 2020.
Silver then started a strong comeback when the US dollar index started retreating. The DXY is trading at $105.30, the lowest it has been in more than a month. This price action is primarily because of worries that the Federal Reserve will start embracing a more dovish tone in the next few months. Besides, the US has published a series of weak economic numbers in the past few days.
For example, on Monday, data by the Institute of Supply Management (ISM) showed that manufacturing sentiment in the US worsened in July. Furthermore, additional data published last week showed that the country’s new and existing home sales declined sharply in June. As such, analysts believe that the Fed will slow its rate hikes. This explains why bond yields have dropped in the past few days.
Another catalyst for the silver price is the decision by Joe Manchin to support the energy bill in Senate. The bill will increase funding for solar projects. Some solar panels contain some silver elements.
The four-hour chart shows that the XAG/USD pair formed a symmetrical triangle shown in blue. It then made a strong rebound above this triangle pattern. As a result, the metal has risen above the 25-day and 50-day moving averages, while the Relative Strength Index (RSI) has moved from the overbought point and is pointing downwards.
The silver price will continue its bullish momentum as long as it is above the two moving averages. If this happens, the next critical level to watch is at $21. A drop below $20 will open the possibility of silver falling to the next support at $19.42.
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This post was last modified on %s = human-readable time difference 11:53