XAG/USD forecast for 14.07.2020

July 14, 2020

XAG/USD forecast: Silver has two growth driversDmitri Demidenko

Fundamental silver price forecast for today

Open and add to the XAG/USD positions according to the Chinese GDP

data

A small market has big shocks. During a recession, silver price trends usually follow those of gold, as the gold market is more stable amid the bigger scales. However, silver usually outperforms gold during the periods of the global GDP recovery. That was so during the previous crisis of 2007-2009. That is going to be now unless the global economic recovery trend is W-shaped.

Silver has two growth drivers, the investment demand and the industrial demand. Silver is widely used in solar panel production, medical equipment, household appliances. That is why the silver price was rising fast in the May-July period amid the reopening of plants and factories all over the world. The [XAG/USD][1] has been corrected down from its three-year highs, as California may not exit the lockdown, and investors are concerned that the industrial production in China is not recovering as fast as before.

Dynamics of China’s industrial production

![LiteForex: XAG/USD forecast for 14.07.2020][2]

Source: Nordea Markets

In the [previous silver analytics][3], I covered the structure of the silver demand in detail, stressing the leading role of China in forming the bull market. Will China save the world’s economy as it did in 2009-2011? China’s GDP was hit more in the current recession than in the previous crisis. However, the fiscal and monetary stimulus is not so huge. China is now more self-sufficient in some sectors than before, so, it can buy less. Not my opinion, Beijing will not hold back. There is a great opportunity to outperform the USA, whose economy was greatly pressed down by the pandemic. Why not take advantage of it?

The growth in China’s demand is a positive factor for silver, as well as an increase in the holdings of silver ETFs. The assets held by one of the largest silver ETFs iShares Silver Trust have increased by $ 2.45 billion to $ 9.72 billion since early 2020. Low Treasury yields and the weakness of the US dollar due to the Fed’s monetary stimulus increase investment demand for silver.

Dynamics of silver and Treasury 10-year yield

![LiteForex: XAG/USD forecast for 14.07.2020][4]

Source: Trading Economics

The growth of precious metals prices usually pushes up the demand for bars, coins, and ETF products. However, the demand for jewelry declines at the same time. However, gold now seems overvalued, which could support the silver uptrend. The loss in the jewelry demand will not be as bad as for gold, as consumers will be more willing to buy a cheaper metal.

The [XAG/USD][1] bulls are also supported by the drop in silver supply. Mexico, Peru, Chile, Argentina, and the USA are among the largest producers of silver. The difficult epidemiological situation in the Americas is the reason for the factory closures, the reduction in production, and an increase in the deficit.

Volumes of silver production

![LiteForex: XAG/USD forecast for 14.07.2020][5]

Source: Silver Institute

Therefore, the [XAG/USD][1] uptrend has strong fundamental reasons, which suggests silver should continue its rally towards $20 and $23 per ounce. It will be relevant to add to silver longs entered at $18.2 and $18.45 [in late June][3] if the report on China’s GDP for the second quarter is strong.

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Price chart of XAGUSD in real time mode

![XAG/USD forecast: Silver has two growth drivers][8]

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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