Silver Price Forecast: XAG/USD hovers above a key support in the $63.00 area

Silver (XAG/USD) maintains a slight decline at the beginning of the European session this Monday, with analysts watching a key support level close to $63.00. Expectations of a Federal Reserve (Fed) interest rate increase later in the week, along with negative market sentiment driven by high oil prices, are strengthening the US Dollar and creating difficulties for precious metals.

On Friday, the US Consumer Price Index (CPI) exceeded forecasts, particularly the core figure, which rose significantly in August; this news bolstered the belief that the US central bank might need to raise interest rates by 25 basis points at the Wednesday meeting or face a loss of credibility that could lead to a USD downfall.

Additionally, the Middle East situation worsens daily, with oil prices climbing due to tensions, and the Strait of Hormuz being closed for six months, leaving only the Bab el-Mandeb Strait for oil transport from Gulf countries. The Houthi militias have seized control of strategic areas in the Bab el-Mandeb Strait, and a drone attack has damaged the Saudi Arabian east-west pipeline.

Brent Oil prices increased to above $103.00, nearing a six-month high of $106.40. XAG/USD is trading at $63.90, showing a bearish near-term outlook, with price action staying above the neckline of a bearish Head & Shoulders (H&S) pattern. Technical indicators, such as the Relative Strength Index (RSI) near 50 and the MACD histogram displaying expanding red bars, support the negative view.

The support zone between the August 19 low at $62.19 and the September 2 low at $63.32 could be a significant hurdle for sellers; below this, the August 6 low at $60.87 is next in line. The H&S target is located just beneath the year-to-date low of $54.77. On the upside, Friday's high near $65.30 may be tested by bulls. A breakout above this level would shift focus to the September 3 and 9 highs over $68,00, followed by the August 28 high at $71.12.

(The technical analysis of this report was assisted by an AI tool. More information available.) Silver, a widely traded commodity, is often sought by investors as a store of value and hedge during inflationary periods due to its intrinsic worth. It can be purchased as physical bullion or through Exchange Traded Funds that mirror its market price.

Silver's price fluctuations are influenced by various factors, including geopolitical tensions, economic concerns, and shifts in the US Dollar's value. As a non-yielding asset, Silver usually appreciates when interest rates are low and depreciates when interest rates rise. The US Dollar's strength generally keeps Silver prices lower, while a weaker Dollar tends to boost Silver prices.

Other variables, such as investment demand, mining output, and recycling rates, also play a role in Silver's price movements. Silver has numerous industrial uses, notably in electronics and solar energy because of its superior electrical conductivity compared to copper and gold. A rise in demand for Silver can push prices upward, whereas a decrease in demand can lead to lower prices.

Silver's price movements are closely linked to Gold's, with a higher Gold price typically resulting in a higher Silver price, as their roles as safe-haven assets are comparable. The Gold/Silver ratio, indicating the amount of Silver required to equal one ounce of Gold, can offer insights into the relative valuation of the two metals.

Diversified economies like the US, China, and India significantly impact Silver prices due to their industrial uses and consumer demand for jewelry. Silver is often viewed as a potentially undervalued asset compared to Gold, as indicated by the Gold/Silver ratio.