$55: New YTD low for Silver price

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Silver price (XAG/USD) is down 0.8% to near $55.00 during the early European trading session on Friday. The white metal posted a fresh Year-To-Date (YTD) low at $54.77 earlier in the day.

Silver price hits a fresh YTD low at $54.77 amid fears of further escalation in the US-Iran war.
Iran threatens to close the Red Sea if the US strikes Iranian infrastructure.
The US Dollar ticks up amid fears that elevated energy prices could re-accelerate US inflation.

Silver price (XAG/USD) is down 0.8% to near $55.00 during the early European trading session on Friday. The white metal posted a fresh Year-To-Date (YTD) low at $54.77 earlier in the day. The asset faces intense selling pressure amid fears that the global energy supply could be squeezed further, following threats from Iran that it will close the Red Sea.

During the day, Iran asked Yemen’s Houthi militia to stand ready to close the Red Sea oil route if the United States (US) strikes Iranian power infrastructure, emerging as a new threat to global energy supply that is already squeezed due to US-Iran military aggression near the Strait of Hormuz, Reuters reports.

Iran’s Red Sea closure threat is a response to US President Donald Trump’s warning, through an interview with Fox News, that he will authorize forces to attack Iranian bridges and power plants if Tehran doesn’t come to the table for negotiations.

Fears of a further increase in oil prices due to energy supply concerns would keep inflation projections de-anchored, a scenario that forces central banks to tighten monetary conditions and eventually diminishes the appeal of non-yielding assets, such as Silver.

Meanwhile, a slight upbeat in the US Dollar amid fears that US inflation could re-accelerate due to higher energy prices after cooling down in June is also weighing on the Silver price. At press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades 0.1% higher to near 100.80. Technically, a higher US Dollar makes the Silver price an unfavorable risk-reward bet for investors.

However, the decline in hawkish Fed bets due to soft US CPI data remains intact. According to the CME FedWatch tool, the odds of the Fed delivering an interest rate hike in the meeting later this month have dropped significantly to 10.2% from 24.6% recorded a week ago.

Silver FAQs

Why do people invest in Silver?

Silver is a precious metal highly traded among investors. It has been historically used as a store of value and a medium of exchange. Although less popular than Gold, traders may turn to Silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during high-inflation periods. Investors can buy physical Silver, in coins or in bars, or trade it through vehicles such as Exchange Traded Funds, which track its price on international markets.

Which factors influence Silver prices?

Silver prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can make Silver price escalate due to its safe-haven status, although to a lesser extent than Gold's. As a yieldless asset, Silver tends to rise with lower interest rates. Its moves also depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong Dollar tends to keep the price of Silver at bay, whereas a weaker Dollar is likely to propel prices up. Other factors such as investment demand, mining supply – Silver is much more abundant than Gold – and recycling rates can also affect prices.

How does industrial demand affect Silver prices?

Silver is widely used in industry, particularly in sectors such as electronics or solar energy, as it has one of the highest electric conductivity of all metals – more than Copper and Gold. A surge in demand can increase prices, while a decline tends to lower them. Dynamics in the US, Chinese and Indian economies can also contribute to price swings: for the US and particularly China, their big industrial sectors use Silver in various processes; in India, consumers’ demand for the precious metal for jewellery also plays a key role in setting prices.

How do Silver prices react to Gold’s moves?

Silver prices tend to follow Gold's moves. When Gold prices rise, Silver typically follows suit, as their status as safe-haven assets is similar. The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, may help to determine the relative valuation between both metals. Some investors may consider a high ratio as an indicator that Silver is undervalued, or Gold is overvalued. On the contrary, a low ratio might suggest that Gold is undervalued relative to Silver.