Silver price forecast as the US dollar index crashes

Silver price has been in consolidation mode for over three weeks now as it lacks enough bullish momentum to retest the 13-year high hit earlier in June. Even so, it remains steady above the steady support zone of $35.00, which had been evasive to the bulls for over a decade.

Heightened risk appetite has lowered the demand for safe-haven assets, capping silver price gains while its lustrous cousin records losses of 4% over the past two weeks. The fear and greed index, which tracks the market sentiment, remains on the greed end of the spectrum with a reading of 67. Even so, a weaker US dollar and optimism over the stability of the Chinese economy continue to support silver price. 

Resilient Chinese economy supports silver price

From a persistent property market crisis to aggressive US tariffs, the Chinese economy has faced a myriad of challenges in recent months. Even so, the second-largest economy continues to show resilience following Beijing’s intensified efforts to diversify and increase domestic consumption. 

The private survey by Caixin Media on China’s manufacturing activity showed significant growth despite the external headwinds. According to data released earlier on Tuesday, the Caixin PMI came in at 50.4 compared to the expected 49.0 and the previous month’s 48.3. 

May marked the highest contraction in close to three years. However, over the past 9 months, China’s manufacturing sector has recorded eight months of growth; an indication of improving market conditions and the economy’s resilience.  

Similarly, data released on Monday by the country’s National Bureau of Statistics showed an improvement in its industrial demand and activity. The gauge for tracking new orders rose to 50.2 while the sub-index that tracks production hit higher at 51. 

At the same time, the official manufacturing purchasing managers’ index (PMI) improved slightly from May’s 49.5 to 49.7 in June. Even so, it showed contraction of the country’s manufacturing activity for the third month in a row as it remains below 50; the benchmark that separates contraction from expansion. Employment and inventory levels at Chinese factories also dropped to 47.9 and 48 respectively. 

The rebound in China’s manufacturing and construction sectors has supported silver price; seeing that they are both crucial for the demand outlook of this industrial metal. Even so, the market remains cautious over the economic outlook amid slower export growth and fading sentiment over Beijing’s fiscal support. 

US dollar records worst half-year performance in decades

The US dollar remains on a downtrend with the dollar index down by about 12% year-to-date. With the markets now in the second half of the year, the greenback has recorded its worst first-half performance since the end of the gold-backed Bretton Woods system in 1973. 

President Trump’s aggressive trade policies and his push for the Federal Reserve to cut interest rates immediately have been weighing on the US dollar. 

Earlier on Tuesday, the dollar index extended its losses to a fresh three-year low amid the persistent economic uncertainties and pricing for a dovish Fed. Similar to other dollar-priced assets, silver price has found support in the weaker greenback as it makes it cheaper for buyers holding foreign currencies. 

Silver price technical analysis

Silver price continues to trade above the crucial zone of $35.50 after momentarily dropping below it earlier on Monday. For over three weeks now, the asset has been in consolidation mode, even as it remains above the previously strong resistance level of $35.00. At the time of writing, the precious metal was trading at $36.13; holding steady above the 25 and 50-day EMAs. 

In the short term, the range between $35.50 and $36.55 remains one to look out for. Even with further rebounding, silver price gains will likely be capped at $37.00. On the flip side, a pullback past this range would have the bulls defending the support at 35.25.