Silver Price: Is the ‘Cheap but Overbought’ XAGUSD Ripe for a Pullback?

silver price
silver price

Silver price (XAGUSD) is down by more than 3.40%, erasing the meagre gains made yesterday. The price is trading at $28.43, which is slightly below last week’s high of $29.82. Other metals are also in the red today, with gold price falling by more than 1.25% and copper down by more than 0.18%. On the other hand, the US dollar index has dropped by 0.25% today.

Is the silver price rally running out of steam?

Silver price has been in a terrific rally in the past few months. The price has moved from an eleven-year low of $11 to a high of $29.82. As such, it is the best-performing metal considering that gold and palladium have risen by less than 30% during this time.

There are four primary reasons why silver prices have been rising. First, the US dollar has been in a downward trend in the past few months because of low demand of the currency. As the coronavirus-related risks eased, more people and companies dumped their dollar holdings.

Second, demand for silver is expected to rise as governments implement large stimulus policies. Third, supply has been relatively challenged because of the extent of the pandemic in countries like Peru and Mexico. Finally, the negative yields in the US has led many investors to shift their capital to silver and other assets.

Another important factor is that silver is currently significantly undervalued. As shown in the chart below, the silver to gold ratio has dropped to the lowest level since April 2017. At the current level of 69, it is significantly lower than this year’s high of 130.

Silver to gold ratio

So, is silver still a buy?

Silver price technical outlook

The weekly chart shows that silver price has been in an upward trend in the past few months. The price is in its tenth consecutive weeks in the green. The chart also shows that the price has found strong resistance at the current level. Also, the chart’s oscillators are at their highest levels in months. For example, the RSI is currently at 88, which is the highest it has been in years.

Similarly, the MACD has climbed to the highest level in years. Interestingly, the two lines of the Stochastic oscillator have made a bearish crossover. This means that silver price could be ripe for a pullback in the near term. If it happens, the key level to watch will be the psychological level of $25.

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Silver price forecast

Silver price

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