Usman Salis
Silver (XAG/USD) maintains its position above $28, driven by geopolitical tensions and a weaker US dollar. Will these factors continue to support silver prices?
XAG/USD Holds Steady Amid Market Uncertainty
Silver (XAG/USD) commenced the week on a strong note, surging to a high of $28.67 before slightly pulling back to around $28.16. This initial upward momentum was fueled by rising geopolitical tensions in the Middle East, which heightened demand for safe-haven assets such as silver.
Concurrently, a softer US dollar, influenced by the Federal Reserve's dovish stance and lackluster employment data, has provided additional support to silver prices. Traders are now keenly awaiting the US ISM Services Purchasing Managers Index (PMI), which is anticipated to increase to 51.0 in July from 48.8 in June. A stronger-than-expected PMI could bolster the US dollar, potentially capping silver's gains.
The US dollar's decline, driven by the Federal Reserve's dovish outlook and weak employment figures, has been a boon for silver prices. As a result, US Treasury bond yields and the dollar are expected to remain suppressed, benefiting silver. The market currently predicts a 74% probability of a 50 basis-point rate cut by the Fed in the September meeting. However, Chicago Fed President Austan Goolsbee has warned against overreacting to a single month's data, highlighting ongoing improvements in inflation and job statistics.
In July, US Nonfarm Payrolls increased by 114,000, down from 179,000 in June and below the anticipated 175,000. The unemployment rate rose to 4.3%, the highest since November 2021, while Average Hourly Earnings increased by 0.2%, falling short of the expected 0.3%.
The combination of a weak US dollar, lower bond yields, and expectations of a Fed rate cut have bolstered silver prices. Additionally, disappointing employment data and a rising unemployment rate have reinforced silver's appeal as a safe-haven investment.
Middle East Tensions Amplify Silver Demand
Heightened tensions in the Middle East are expected to drive demand for safe-haven assets like silver. US Secretary of State Antony Blinken has cautioned G7 nations about potential attacks by Iran and Hezbollah on Israel.
In response, US President Joe Biden is set to convene with the National Security Council to address the situation. Israel is contemplating a preemptive strike on Iran, while Hezbollah has vowed to intensify attacks following Israel's recent killing of a senior Hezbollah commander and other civilians.
The situation is further complicated by the assassination of Hamas leader Ismail Haniyeh and ongoing clashes between Hezbollah and Israeli forces. These escalating conflicts are likely to support silver prices, alongside a weaker US dollar and declining bond yields.
Potential for Gains Amid Geopolitical Risks
XAG prices have retraced to $28.16 after peaking at $28.67, influenced by geopolitical tensions and a weak US dollar. Market participants are focusing on the US ISM Services PMI, which could affect future price movements. If geopolitical tensions persist and the dollar remains weak, silver may see further gains.
Currently, Silver (XAG/USD) is priced at $28.16, reflecting a modest increase of 0.04% on the 4-hour chart. The pivot point is set at $28.60, with immediate resistance at $29.15, followed by $29.45 and $29.89.
Key support levels include $27.78, $27.30, and $26.82. The 50-day EMA is $28.63, while the 200-day EMA stands at $29.33, indicating bearish pressure below $28.60.
Silver's outlook remains bearish if it continues to trade below the pivot. However, a break above $28.60 could trigger bullish momentum, potentially leading to a rise towards the next resistance level.
Usman Salis
