Key Points:
Silver continues to underperform gold.
Indian imports are gradually increasing.
A waning interest in the AI sector could boost precious metal prices.
Consider going long on XAG/USD if the price breaks above the 66.8 resistance level.
Silver Weekly Fundamental Forecast
Silver remains overshadowed by gold, whose surge above $4400 per ounce has captured global investor attention. However, the two precious metals share many common drivers, and XAG/USD's underperformance makes silver worthy of close attention. Due to its smaller market size, silver's rallies often outpace those of gold once momentum builds. Catching this trend early can offer significant profit potential.
The primary driver behind silver's rise to a two-month high is investor disappointment—both with Federal Reserve Chair Kevin Warsh (who appears more inclined to combat inflation through market forces rather than direct policy action) and with US macroeconomic data. Weak employment, inflation, and retail sales figures suggest the US economy is cooling, reducing the likelihood of the Fed tightening monetary policy. This has pushed down US Treasury yields, weakened the US dollar, and created a favorable backdrop for silver against the dollar (XAG/USD).
While silver lacks one of gold's key growth drivers—central bank bullion purchases—it benefits from strong demand for physical silver and a large pool of retail investors waiting for the right moment to enter the market. These factors could provide further support for long positions in XAG/USD.
Indian Silver Premium
In May, India introduced a precious metal import license system aimed at reducing its current account deficit and protecting foreign exchange reserves. This move drastically reduced silver imports, plummeting from 747 tons in January to just 29 tons in June. However, the new system is gradually taking effect, with imports recovering to nearly 90 tons in August. The growing demand is also reflected in premiums, which have now fallen to around $4 per ounce. These premiums are incentivizing silver flows from other parts of the world into Asia, acting as another factor pushing up the price of silver against the dollar (XAG/USD).
According to Citadel Securities, retail investors are also pushing silver prices higher. The consolidation in silver prices during June and July prompted them to rotate capital into the stock market, where demand for AI-related stocks remained strong. However, the conclusion of the US corporate earnings season may weaken support for large-cap tech stocks. As investors shift their focus to other markets, any rebound momentum in XAG/USD could signal the right time to join the long side.
The outlook for precious metals remains robust. Further escalation of conflicts in the Middle East is unlikely to significantly impact precious metals, as geopolitical tensions coupled with a slowing US economy could create a stagflationary environment favorable to these assets. Gold might benefit more from such a scenario, but silver, despite its greater reliance on industrial demand, could still deliver surprises.
Trading Plan
Against this backdrop, long positions established in late June could be increased if silver breaks above the 66.8 resistance level.
This forecast is based on an analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data has also been taken into account.
