Silver Price Forecast: XAG/USD slips below $74.50 on war driven inflation

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Silver price (XAG/USD) falls around 1.5%, trading around $74.40 per troy ounce during the Asian hours on Tuesday. The non-yielding metal declines as the US–Iran conflict fuels an energy-driven inflation shock, raising expectations of prolonged or tighter central banks’ policy.

Silver declines as the US–Iran conflict fuels inflation, boosting expectations of prolonged or tighter central banks’ policy.
Tehran signaled that it could end hostilities under conditions, but Trump rejected the proposal.
The BoJ is expected to hold rates at 0.75% Tuesday amid economic concerns from the US–Iran war.

However, markets weigh prospects of a lasting ceasefire and a potential reopening after Iran’s fresh proposal to the United States (US). Tehran reportedly signaled via Pakistan that hostilities could end if Washington lifts its naval blockade, revises transit rules through Hormuz, and guarantees against future military action.

On the contrary, a US official said on Monday that President Donald Trump is dissatisfied with Iran’s proposal. Iranian sources added that Tehran avoided addressing its nuclear program until hostilities cease and Gulf shipping disputes are resolved.

Traders are also looking ahead to policy decisions from key central banks this week, including the US Federal Reserve (Fed), European Central Bank (ECB), and Bank of Japan (BoJ). The Federal Reserve (Fed) is widely expected to keep interest rates unchanged at its upcoming April policy meeting on Wednesday, maintaining the federal funds target range at 3.50% to 3.75%. This would mark the third consecutive hold.

The Bank of Japan is expected to hold rates at 0.75% later in the day amid economic concerns from the US–Iran war, while the European Central Bank is also likely to keep its deposit rate unchanged at 2.0% on Thursday.

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.