The XAGUSD rally is proving to be a fascinating development, with silver lagging behind the sector leader. Nevertheless, historical data show that there are periods when the performance of silver outstrips that of gold. Could this be an opportune moment for silver to shine? Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- Gold has risen by 41% and silver by 23% over the last year.
- Silver is growing more slowly due to industrial concerns.
- The Fed’s resumption of monetary expansion will push the XAGUSD pair higher.
- A breakout of resistance of $33.7 will be a reason to buy silver.
Weekly Fundamental Forecast for Silver
Goldman Sachs and other major banks forecast that gold could hit $4,000 per ounce by 2026. However, recent pullbacks in XAUUSD are increasingly concerning. Initially, prices dropped after it was revealed that Donald Trump excluded metals from the list of tariffs on US Independence Day. This was compounded by a more conciliatory approach from the US administration towards the Fed and China. These significant declines prompt worries about whether gold is overbought and draw attention to silver.
Adding silver to your portfolio could be a wise move. Over the past 12 months, the value of gold has increased by 41%, while silver has climbed by only 23%. Although it is currently outperforming the sector leader, it is still significantly outperforming the S&P 500 index, which has advanced by 6%.
Gold and Silver Performance
Source: Wall Street Journal.
Silver uniquely combines extensive industrial use with functions similar to gold. The XAGUSD pair helps hedge against inflation risks while addressing concerns over recessions and geopolitics. Silver’s strong dependence on industrial demand helps explain its lagging performance, especially as US tariffs threaten to dampen the global economy and reduce demand for industrial metals.
Nevertheless, history shows many examples of silver regaining lost ground. For instance, twelve months after the COVID-19 panic in March 2020, the XAGUSD pair surged by 73%, while XAUUSD only increased by 8%. Similarly, after the 2008 global economic crisis, silver benefited from the Fed’s rate cuts and quantitative easing, growing bolstered by both monetary stimulus and a rebound in industrial demand.
History has a tendency to repeat itself, and for investors, the gold-silver ratio serves as a crucial indicator. In 2020, this ratio approached record highs in the second half of April before plummeting to 98. Over the past 30 years, the average ratio has been 68, suggesting the potential for further declines. Therefore, it may be wise to focus on XAGUSD.
Gold-Silver Ratio
Source: Wall Street Journal.
The period following a recession in the US economy is usually a favorable time for purchases, as evidenced by the events of 2008 and 2020. During such times, the Fed lowers the federal funds rate quite aggressively, weakening the US dollar and allowing silver to soar. However, if the US manages to avoid a recession, silver will prove to be a more profitable investment than gold.
Weekly Trading Plan for Silver
If the price breaks through the resistance of $33.7, one may consider long trades on XAGUSD. Besides, should a correction unfold, long trades can also be opened. However, buying silver at the current market price is not advisable.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of XAGUSD in real time mode
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