Rising investment demand, the “Trump Always Chickens Out” (TACO) trading, as well as signs of fiscal dominance, have pushed XAGUSD quotes to 13-year highs. Will this rally sustain, or is it time to lock in profits? Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- Capital inflows into ETFs exceeded 95 million ounces in six months.
- Speculators have increased their long positions in silver by 163% since the beginning of the year.
- Silver is still undervalued compared to gold.
- Long positions on the XAGUSD can be considered with a target of $40.
Monthly Fundamental Forecast for Silver
In 2025, financial markets exhibit a distinctive feature: sector rotation. Investors are showing significant interest in a variety of asset classes. Assets that were previously underperforming are now being reevaluated and are becoming more sought-after. In the first half of the year, energy companies included in the S&P 500 index were considered outsiders, but they have since become leaders. The same holds true for silver. Between January and June, it achieved its strongest half-year growth since the second half of 2010, surpassing gold, which had previously outperformed it.
Gold and Silver Performance
Source: Trading Economics.
The rally in the XAGUSD is driven by investment demand, hopes that US tariffs will not destroy global industry, and fiscal dominance. According to the Silver Institute, capital inflows into silver ETFs exceeded 95 million ounces from January to July. This is more than was achieved in the entire previous year. According to the latest figures, global holdings of specialized exchange-traded funds stood at 1.13 billion ounces, representing a 7% decrease compared to the record high achieved in February 2021.
The TACO trading, or “Trump Always Chickens Out,” creates tailwinds for the XAGUSD. Investors are strategically acquiring assets during market dips, assuming that the US tariffs were the pinnacle of Trump’s trade wars. The tariffs will likely be reduced later. This strategy has proven to be effective in the precious metals market.
The pressure exerted by the US administration on the Fed has much in common with fiscal dominance. The ruling power may persuade the central bank to lower rates, thereby reducing the cost to the government of financing its bond spending. This is a requirement stipulated by the recently enacted $3.4 trillion tax cut bill. If Jerome Powell decides to reduce the interest rate, silver prices will skyrocket. If not, the president’s repeated criticism of the Fed’s independence will continue to erode confidence in the US dollar. The USD index’s decline of more than 10% in the first half of the year was an important driver of the peak in the XAGUSD.
Silver and US Dollar Performance
Source: Trading Economics.
Will silver prices continue to rise? The surge in demand for ETFs, coupled with the substantial rise in net long positions held by asset managers and hedge funds, reaching an impressive 163% since the close of 2024, underscores the robust potential for a rally in the XAGUSD. Silver is significantly undervalued relative to gold. To return to the five-year average ratio of 80, silver would need to reach $40 per ounce.
The resurgence of American exceptionalism and the strengthening of the US dollar could put pressure on silver prices. However, these factors will likely have a short-lived effect.
Monthly Trading Plan for XAGUSD
Silver has managed to reach the first of the previously set targets of $37 and $39 per ounce and retreated, allowing traders to open long trades. Existing positions can be maintained and increased periodically. Moreover, the target for the XAGUSD can be shifted slightly higher to $40 per ounce.
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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