XAGUSD: silver price rally fades at 78.6% retracement on profit taking

Silver price (XAGUSD) rally hit a break today as investors took profit after the price hit an important resistance level. The price is trading at 17.10, which is slightly above last week’s high of 17.60.

Silver price follows gold

Silver and gold are both precious metals. In most cases, the price of silver tends to follow that of gold and today, the latter was in a downward trend.

The price of gold declined partly because of bad news from India. As we reported earlier today, the coronavirus pandemic led to a sharp decline in gold demand this month. This decline came after the 36% decline of demand in the first quarter. Obviously, Indians were not buying gold during the lockdown.

The price of gold and silver also declined because of profit taking. The price of silver is now trading at the highest level since February this year while that of gold is near its seven-year high.

Third, silver price is falling because of a sudden rally in global stocks. In most cases, rotation happens between gold and silver and global stocks. In Europe, the DAX index rose by more than 2% while the CAC 40 rose by more than 1.45%. In Asia, the Nikkei 25 and China A50 rose by 1.75% and 0.40% respectively.

Fourth, turns out, hedge funds are continuing being optimistic about silver prices. That is according to data from the CFTC. The CoT report released on Friday showed that bullish positions on silver increased by 30.9k in the previous week. That was higher than the previous week’s 25.8.

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XAGUSD technical outlook

Silver price has been on an upward trend after hitting a low of $11.58 in March. On the daily chart, the price has been generally rising even though it made bullish pennant shown in pink below.

The final reason why the XAGUSD is making a pullback is that technically, the price hit a key resistance level. Last week, it hit the 78.6% Fibonacci Retracement level. Whenever such a thing happens, some bulls exit as they take profits.

Therefore, I expect two scenarios to happen at this point. First, the price may continue moving lower as bears return. This will see the price reach the 61.8% Fibonacci retracement level at $16.17.

On the other hand, the price may resume the upward trend as bulls remain resilient. For this to happen, bulls need to defend levels above $17.50.

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