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Lumber (Timber), Silver (XAG/USD) Forecast: Lumber and Silver (XAG/USD) Poised for Higher Prices?

Lumber (Timber), Silver (XAG/USD) Forecast: Lumber and Silver (XAG/USD) Poised for Higher Prices?

Tammy Da Costa, Analyst

Lumber (Timber) Silver (XAG/USD) Outlook:

  • Lumber prices on high alert amid weather concerns
  • Inflation and stimulus continue to support commodity prices
  • Silver (XAG/USD) prices remain vigilant around key psychological level of $25

Inflation, Lumber and Silver

When inflation concerns began to flare, the demand for commodities such as lumber, copper and silver (XAG/USD) soared, placing the Lumber supply chain under an immense amount of pressure. Given the heavy usage of Lumber in housing, the combination of massive Stimulus injections and lockdowns enabled US citizens to renovate their current homes, further supporting the bullish narrative pertaining to the softwood market.

US Housing Starts

Source: Refinitiv

Since April 2020, a combination of low interest rates, lockdowns and additional stimulus measures encouraged US citizens to renovate and expand on their homes, pushing the price of Lumber higher.

With the combination of high demand and supply shortages fueling the extensive rally, Lumber prices managed to achieve a growth of approximately 580% since the start of the pandemic (lockdowns) in March 2020, before peaking at a record high of $17,110 on 10 May 2021.

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But with inflationary concerns now claiming the spotlight for at least a few months, the Federal Reserve has been looking at the softwood market as a leading indicator that could potentially be the primary driver of policy changes in monetary policy and more specifically, talks of tapering.

Lumber (Timber) Price Action

Since reaching $1711, Lumber prices have pulled back aggressively, providing reassurance to Fed Chair, Jerome Powell last month that inflation may be transitory. With prices now resting below $600, an increase in bullish momentum may provide bulls with further upside potential, towards the 23.6% Fibonacci retracement level of $731.4 as the CCI looks to exit oversold territory.

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Lumber (Timber) Daily Chart

Chart prepared by Tammy Da Costa using TradingView

Silver (XAG/USD) Price Action

Silver (XAG/USD) prices currently remain supported by the key psychological level of $25 that has provided a certain level of comfort for the precious metal on numerous occasions. The confluent zone between the 38.2% Fibonacci retracement level (Aug 2020 – September 2020) of $24.75 and the 23.6% Fibonacci retracement (2020 move) of $25.67 are expected to remain intact, providing additional support and resistance for the imminent move.

Silver (XAG/USD) Daily Chart

Chart prepared by Tammy Da Costa using TradingView

Meanwhile, price action currently remains below both the 20 and 50 Moving Average (MA) while the Commodity Channel Index (CCI) remains in overbought territory.

--- Written by Tammy Da Costa, Analyst for DailyFX.com

Contact and follow Tammy on Twitter: @Tams707

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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