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XAG/USD forecast for 23.06.2020

June 23, 2020

June 23, 2020

Silver is outperforming goldDmitri Demidenko

XAG/USD bulls are going ahead

If you asked me which Forex&Commodities asset is the most promising investment, I would choose silver without hesitating. First, silver traditionally follows the sector leader, gold, so, it has the same growth drivers. Second, the main consumer of physical silver is the industry. It suggests the [XAG/USD][1] falls faster during global recessions, but the uptrend also recovers faster than the [XAU/USD][2] during the rebound of global growth.

According to the Silver Institute, silver should save investors from the economic fallout of the pandemic. The organization says, in 2020, the global physical silver demand in the industrial consumption will decline from 510.9 million ounces to 475.4 million ounces, the consumption of silver jewelry and silverware will be down from 201.3 million ounces to 187.5 million ounces. However, the demand for ETF products will increase from 81.7 million ounces to 120 million ounces.

Dynamics and structure of supply and demand for silver

![LiteForex: XAG/USD forecast for 23.06.2020][3]

Source: Silver Institute

In fact, the ETF silver holdings are increasing much faster. Since the [XAG/USD][1] price started growing up from the March low, according to Commerzbank, the ETF silver holdings increased by 4900 tons, which is equivalent to two months of global mining. Differently put, 2⁄3 of global silver production is consumed by ETFs.

In my opinion, the silver industrial demand will be increasing faster than the Silver Institute expects. Under the current conditions, it is easier to return people to production than make them use restaurants and hotels. The results of social distancing are still present. That is why the manufacturing PMI is going up to the trend faster than the services PMI. One of the best performers is China, which has been one of the first to defeat the COVID-19 epidemic. The growth of China’s PMI gives a clue on the [XAG/USD][1] future price trend.

Dynamics of silver and China’s manufacturing PMI

![LiteForex: XAG/USD forecast for 23.06.2020][4]

Source: Trading Economics

A significant proportion of the industrial consumption in sliver demand influences the trend of silver futures during the recession, followed by the global economic recovery. The silver price was sliding down faster than gold to the low of March 2020 and to the low of October 2008 during the previous economic crisis. From the lows of 2008 to the record highs of 2011, the [XAU/USD][2] increased by 165%, while the [XAG/USD][1] was 490%(!) up. Since mid-March, gold has been 21% up, while the silver price has increased by 53%.

In addition to the economic recovery after the recession, silver is supported by the growth drivers of gold. These are huge volumes of cheap liquidity provided by the Fed and other central banks, ultra-low rates of the global bond market, and the weakness of the world major currencies, including the US dollar. Therefore, I could recommend buying silver on the breakout of the resistance levels at $18.2 and $18.45. The middle-term upside targets for silver purchases are $20 and $23 per ounce. The major risks for this scenario are the second wave of the coronavirus pandemic and the escalation of trade wars.

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Price chart of XAGUSD in real time mode

![Silver is outperforming gold][7]

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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  2. my.liteforex.com/trading/chart?symbol=XAUUSD&returnUrl=true
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  4. cdn.liteforex.com/cache/uploads/blog_post/fundamental_analysis/silver-pmi-23-06-20.jpg?w=30&s=fef45b954c147d3041a20673678e8000
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