Silver Price Forecast: XAG/USD rebounds above $58.00 despite inflation fears

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Silver price (XAG/USD) inches higher after three days of losses, trading around $58.30 per troy ounce during the Asian hours on Thursday.

Silver could drop further as rising US-Iran tensions stoke energy inflation fears, keeping Fed interest rates higher for longer.
Trump threatened further airstrikes and a naval blockade following recent oil tanker attacks in the Strait of Hormuz.
FOMC Meeting Minutes reveal policymakers are split over keeping the 3.6% interest rate steady or raising it.

Silver price (XAG/USD) inches higher after three days of losses, trading around $58.30 per troy ounce during the Asian hours on Thursday. The price of non-yielding white metal could drop even further as renewed tensions between the United States (US) and Iran are sparking fears of energy-driven inflation, which will likely push the Federal Reserve to keep interest rates higher for longer to bring prices down.

The US President Donald Trump stated on Wednesday that an interim agreement to end the conflict with Iran was officially "over," stoking concerns that a renewal of war could again drive inflation and push up interest rates. Trump also threatened a second day of airstrikes and vowed to reimpose a US naval blockade in retaliation for recent attacks on oil tankers transiting the Strait of Hormuz.

The minutes of the Fed’s June 16-17 meeting released Wednesday showed that a few policymakers said there was a case for hiking rates, though they ultimately supported the decision to leave rates on hold. The minutes reflected growing concern among Fed officials over inflation just as worries about the labor market slightly receded. Swap traders are now pricing the likelihood of a rate hike at the next Fed meeting at more than 30%, up from less than 20% last Thursday, according to the CME FedWatch tool.

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.