Silver Price to $40? XAGUSD Returns to the Upside With Rising Prospects of A Rally

Summary:
• Improved manufacturing outlook in China adds weight to a bullish outlook for silver price, but there's more at play.

Silver price edged up on Tuesday, rising by 1.2 percent to trade at $31.53 at the time of writing. The demand for precious metals is on the rise as the market sentiment surrounding the US economy remains lukewarm. On the other hand, there is renewed optimism on China’s economy following its recent move to announce a major economic stimulus.

Upbeat manufacturing outlook favours silver

Despite gold price hitting multiple record highs this year, silver has outperformed gold. The greyish metal’s returns stand at 30 percent against the yellow metal’s profit of 29 percent. This is despite gold’s higher safe haven status. Therefore, it is likely that silver’s gains have largely been driven by industrial demand. Meanwhile, another precious metal, Palladium has gained 2 percent in the last month.

China’s manufacturing PMI beat analyst forecasts for the first time in five months , signalling potential recovery by its economy. The September PMI reading came in at 49.8 against the forecast figure of 49.4 and up from August’s 49.1. Silver is used in multiple industrial processing and manufacturing processes, and a recovery by China is therefore bullish for XAGUSD. A combined rise in safe haven and industrial demand could potentially spur a silver price rally.

Meanwhile, ISM and S&P PMI data gave conflicting accounts of US manufacturing activity in September. The ISM Manufacturing PMI data came in at 47.2 below the forecast figure of 47.6. On the other hand, the S&P reading came in at 47.3 percent, exceeding the forecast 47.0 percent. The downside to recent gains by silver price is the potential incentive to offload part of their holdings for profit.

Silver price forecast

The momentum on silver price calls for further upside. The commodity will likely pivot at $31.45, with immediate hurdle likely to be positioned at $31.86. However, extended control by the bulls could break above that level to test $32.30.

Alternatively, the sellers could take control if the price goes below $31.45. If that happens, initial support could come at $31.10, but a stronger bearish momentum could breach that level. That could not only invalidate the upside narrative, but also potentially extend losses to test $30.67.