XAGUSD – The white metal witnessed a severe price crash during the Asian session today. Investors seem to have returned to the risk aversion mode leading them to sell off risky assets ahead of the CPI report to be released today. The price of silver was therefore pushed down to its lowest point in three years at $18.85. Investors seem to have lost appetite for commodities hitherto used as a hedge against inflation.
The aggressive interest rate hikes by the Fed and signals of possible rate hiking in July have forced investors to sell their white metal holdings and purchase the safe haven – the US dollar.
Silver has been pegged to the US dollar and is primarily affected by the strong dollar strength. With the dollar index rising to a new high at 108.4, marking its highest point in twenty years, silver and every other commodity pegged to the US dollar were bound to fall.
Silver is currently seeking to establish new support for its recovery at its current position. Still, the bears are not taking any break. The selling pressure for silver is currently very high, and analysts predict higher lows for this asset. The next target for silver could be the support established in 2019 at $18.13.
Nonetheless, the outcome of the CPI report to be released today will determine the next trend for silver and if the current downward trend will continue unchecked. A higher reading from the CPI data will likely result in a further interest rate hike for the US dollar. This will further discount the price of silver and other risky assets.
What is the Risk Aversion Mode?
The risk aversion mode, also known as risk-off mode, is when investors avoid risky assets. Risky assets include commodities, cryptocurrency, and stock to invest in the US dollar and other less risky investments. Often investors are attracted to the US dollar at such points due to the high-interest rate offered. This risk aversion mode had become a winter for silver and other risky assets. Thus, buyers often showed low interest in buying more, while existing investors often sold off their long holdings. This explains why the price of silver was pushed to a 3-year low during the Asian session today.
