Silver price outlook: XAG/USD en route to pre-pandemic levels?

silver price

Silver price has dropped by over 6% since the beginning of July. It has been on a particularly sharp decline since mid-April.While gold price may soon find its bottom, silver’s sell-off will likely continue into the coming weeks.  

silver price
silver price

Strong US dollar

Silver price has been on a downtrend in recent weeks as the US dollar continues to strengthen. The rallying of the greenback has largely been based on the Fed’s hawkish stance. The central bank is keen on addressing the high inflation even if that means slowing down the economy.

The US jobs data released on Friday further raised bets for the aggressive tightening of the bank’s monetary policy. June’s nonfarm payrolls rose by 372,000 compared to the expected 268,000. While that was a decline from the prior month’s 384,000, it still portrays a strong labor market.

As is the case with other commodities, silver price tends to move inversely to the value of the US dollar. This is founded on the fact that a strong US dollar makes the metal more expensive for buyers holding other currencies.

As the week progresses, the greenback and silver price by extension will be reacting to the US CPI data scheduled for release on Wednesday. Experts expect consumer prices to have risen by 8.8% YoY compared to the prior month’s 8.6%. While the markets appear to have priced in a negative scenario, High inflation coupled with a strong labor market will further weigh on silver price as the US dollar rallies further.

Industrial demand

In my recent gold price article, I forecast that the precious metal will likely find its bottom in the short term. While gold tends to set the pace for other precious metals such as silver, I expect its divergence with the latter to increase. This is largely because more than 50% of silver’s demand lies in its use as an industrial metal.

Amid the heightened recession woes, industrial activities at a global level will remain unsteady in coming months. Besides, the surge in COVID-19 cases in China, the leading consumer of industrial metals worldwide, has further boosted the bearish outlook. Based on these factors, silver price’s downtrend will likely continue into the coming weeks.

In the immediate term, $19.00 remains the support zone to look out for. However, based on both the fundamentals and technicals, it is not unlikely that silver price may hit pre-pandemic levels of around $17.50 within the foreseeable future.  

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