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Forecast for XAGUSD for 28 July 2020

July 28, 2020

July 28, 2020

Forecast for XAG/USD: Silver is given the green lightDmitri Demidenko

Fundamental forecast for silver for today

Increased investments in environmental (“green”) projects will

contribute to the XAG/USD growth

The weakness of the US dollar, rising geopolitical tensions, falling real interest rates of the global debt market, and massive monetary stimulus from the world’s leading central banks have allowed silver to meet the $23 per ounce target I set [in June][1] much earlier than one might have thought. Over the month, the [XAG/USD][2] quotes jumped more than 40%, but the rally turned out to be so rapid that buyers decided to take profit. Moreover, there is a reason for that - the Fed meeting.

As I noted [in July][3], silver has two growth drivers: investment and industrial demand, which allows it to outpace gold during the recovery phase of the global economy. Citigroup notes that silver shows its best results when there is interest in an asset that protects wealth from inflation, and economic activity gradually returns to the trend. The company predicts the metal will rise to $30 per ounce in 12 months.

Stocks of silver ETFs have increased by 35% to 820 million ounces since the beginning of the year, and gold ETFs have increased by 26%, according to Eikon. Most likely, this trend will continue in the third quarter, which allows the Silver Institute to predict a drop in the Gold/Silver cross rate to 90. In March, the figure exceeded 120, while its average value over the past decade has been 69.

Gold/Silver cross rate dynamics

![LiteForex: Forecast for XAGUSD for 28 July 2020][4]

Source: Bloomberg.

In my opinion, the long-term prospects for silver look better than those of the leader of the precious metals sector. According to research by RBC Capital Markets, its share of industrial use in total demand is 55%, while increased investments in environmental projects will contribute to the growth of consumption. BMO Capital Markets notes that in 2020, governments spent more than $50 billion on these goals, and Joe Biden’s intention to ensure that the US energy sector stops polluting the environment by 2035 could catalyze the [XAG/USD][2] rally. I would not be surprised if the growing ratings of the Democrat inspire the bulls to attack.

I [noted][3] that one of the factors behind the growth of silver is the difficult epidemiological situation in the silver-producing countries. The Silver Institute seems to agree with me, which predicts a 9% reduction in silver production in 2020. Perhaps the investors who missed the gold rally will look for [XAG/USD][2] buying opportunities in the hope that silver can also rewrite historical highs.

The reasons for the current correction should be sought not only in profit-taking but also in fears that the excessively gloomy rhetoric of the Fed at the July 28-29 meeting will provoke a pullback in the S&P 500 and make the US dollar interesting as a safe-haven asset again. In my opinion, Jerome Powell will not make the same mistake as in late 2018, when a few of his incautious phrases drowned the stock index. In this regard, the pullback of silver is a great opportunity to form longs with targets at $27.5 and $28.5 per ounce. The combined strategy of selling gold and buying silver with the target at 80 for Gold/Silver (XAU/XAG) cross rate looks attractive.

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Price chart of XAGUSD in real time mode

![Forecast for XAG/USD: Silver is given the green light][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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  1. www.liteforex.com/blog/analysts-opinions/silver-is-outperforming-gold/
  2. my.liteforex.com/trading/chart?symbol=XAGUSD
  3. www.liteforex.com/blog/analysts-opinions/xagusd-forecast-silver-has-two-growth-drivers/
  4. cdn.liteforex.com/cache/uploads/blog_post/fundamental_analysis/gold-silver-28-07-20.jpg?w=30&s=a382aec4562f7fcad3fbce5cad6c37fa
  5. my.liteforex.com/?category=analysts-opinions&slug=forecast-for-xagusd-silver-is-given-the-green-light&openPopup=%2Fregistration%2Fpopup&utm_source=blog&utm_medium=article&utm_campaign=bonus
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  7. cdn.liteforex.com/cache/uploads/blog_post/fundamental_analysis/liteforex-blog-xagusd-28-07-20.jpg?q=75&w=1000&s=256f76eda71b3a83e67c9d75477f09f1