Silver (XAG) Forecast: Divergence from Gold Rally Signals Caution as Price Drops Below $31

Silver Struggles as Gold Reaches New Heights

Silver prices are edging lower on Wednesday, creating a notable divergence with gold’s near-record performance. This split in precious metals has raised questions among traders about the factors driving these contrasting trends.

At 10:54 GMT, XAG/USD is trading $30.91, down $0.34 or -1.10%.

Silver’s Underwhelming Performance

Silver is barely holding above the $30 level, significantly below its 11-year high of $32.52 reached in May. This lackluster response suggests silver traders may be more cautious about economic prospects and monetary policy decisions than their gold counterparts.

Factors Weighing on Silver

Several elements are contributing to silver’s underperformance:

1. Concerns about industrial demand in a potential recession
2. Uncertainty around the timing of U.S. interest rate cuts
3. Possible overvaluation following its strong rally earlier this year
4. A shift in speculative capital from silver to gold ETFs
5. Softening physical demand in response to high prices

ETF Flows and Market Sentiment

While silver struggles, gold ETFs have seen renewed interest. The World Gold Council reported inflows of $0.5 billion, or 7.6 metric tons, into gold ETFs last week. This trend highlights the current preference for gold among institutional investors.

Gold’s Contrasting Rally

In contrast to silver, gold prices have reached a new record high at  $2482.42. This surge comes in response to Federal Reserve Chair Jerome Powell’s recent comments, which strengthened the case for a potential September rate cut.

Market Forecast

The outlook for silver remains mixed in the short term. The metal may experience a soft third quarter due to ongoing uncertainty about U.S. monetary policy. However, there’s potential for a rally to gather pace later in the year.

Gold, on the other hand, maintains a bullish outlook in the near term, with the anticipation of upcoming U.S. rate cuts likely to drive prices higher.

Traders should closely monitor upcoming U.S. economic data, particularly retail sales figures, for insights into potential Fed policy decisions. These factors will be crucial in determining the future performance of both silver and gold in the precious metals market.

Technical Analysis

XAG/USD is edging lower on Wednesday, but traders are still defending 50% support at $30.59. A trade through this level will be a sign of weakness, but new buyers are likely to step in on a test of the 50-Day Moving Average at $30.15.

The 50-Day MA or intermediate trend indicator is very important to the structure of the silver market. Should it fail to hold, prices could collapse into the January 26 bottom at $28.57.