XAG/USD forecast for 25.08.2020

August 25, 2020

XAG/USD forecast: Silver is against vaccinesDmitri Demidenko

Fundamental silver price forecast for today

Open the XAG/USD positions according to outcomes of Jerome Powell’s

speech in Jackson Hole

Silver, having reached the targets at $27.5 and $28.5 indicated in [July][1], crashed down. However, silver has risen in value a little finally. The major downside drivers for silver were the growth of the Treasury yields and the minutes of the FOMC meeting, where the officials announced that the Fed does not need to control the yield curve. The decline in the Treasury real yields has been the main [XAG/USD][2] growth driver in 2020. If the Fed doesn’t control the yield rise, the precious metals sector will be weighed on.

The primary reasons for the increase in the Treasury yield are the US economic recovery, easing of the geopolitical tensions, the expansion of the US budget deficit, and the US national debt. However, Donald plans to fast-track getting the experimental vaccine from the UK. Furthermore, Washington recognizes Beijing’s efforts to comply with the phase-one trade deal commitments. These factors suggest some optimism about the US GDP outlook, setting the [XAG/USD][2] bulls back.

But still, the growth of the Treasury yields and a less dovish tone of the minutes of the FOMC July meeting have pressed on gold stronger than on the silver. The gold/silver ratio has contracted to 72, which supports the strategy of buying the [XAG/USD][2] and selling the [XAU/USD][3] at the same time suggested in the [previous analytics][1]. The historical value of the indicator is 69. Commerzbank believes that silver is not much undervalued compared to gold. The bank says the significant reasons for a drop in the G/S ratio is the substantially strong demand for the silver ETFs.

Dynamics of capital inflows into gold and silver ETFs

![LiteForex: XAG/USD forecast for 25.08.2020][4]

Source : Wall Street Journal

There is severe selling pressure in the precious metal market. It results from Donald Trump’s willingness to win the presidential election by demonstrating his efficiency in the US-China relations, the fight against the pandemic, and in the US stock market rally. The Fed’s unwillingness to control the Treasury yield curve is also a bearish factor for precious metals. Nevertheless, the polls show that Joe Biden leads over Donald Trump. If Biden becomes the president, the silver bulls will be supported. The Democrat won’t attack China as aggressively as the current US president, which is likely to widen the US foreign trade deficit. The expansion of the US twin deficit is a bearish factor for the greenback.

Dynamics of the US twin deficit and USD

![LiteForex: XAG/USD forecast for 25.08.2020][5]

Source : Nordea Markets

Remarkably, the [XAG/USD][2] bulls can be supported in the short run by Jerome Powell’s speech in Jackson Hole. According to TD Securities, the US central banker is going to announce the Fed’s plans for average inflation targeting, which means to put up with the inflation rise above 2%. Nordea Markets believes that it makes no sense without the control of the yield curve, so the Fed should bring this idea back sooner or later. Therefore, a pleasant surprise from the Fed could resume the silver rally, if the price breaks out the resistances at $27.25 and $27.75. Otherwise, the [XAG/USD][2] is likely to roll down to 25.75 and 24.35.

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Price chart of XAGUSD in real time mode

![XAG/USD forecast: Silver is against vaccines][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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