Silver rebounds on geopolitical risks, accommodative Fed policy expectations

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Silver (XAG/USD) extends its rebound for a second consecutive day and trades around $89.70 at the time of writing, up 5.50% on the day.

Silver rises sharply and trades around $89.70, supported by renewed demand for safe-haven assets.
Renewed tensions between the United States and Iran underpin demand for precious metals.
Latest US macroeconomic data fuel expectations of an accommodative monetary policy.

Silver (XAG/USD) extends its rebound for a second consecutive day and trades around $89.70 at the time of writing, up 5.50% on the day. The white metal benefits from a supportive backdrop marked by renewed geopolitical tensions and mixed US macroeconomic indicators, which revive interest in assets considered safe havens.

Demand for Silver strengthens amid heightened tensions between the United States (US) and Iran, following military incidents reported in the Arabian Sea. This climate of geopolitical uncertainty prompts investors to scale back exposure to riskier assets and reallocate toward precious metals, including Silver, which is traditionally sought during periods of international stress.

The current rebound also reflects a catch-up move after the sharp correction seen recently, when Silver fell significantly from its record highs. That decline was notably triggered by the nomination of Kevin Warsh as Chairman of the Federal Reserve (Fed), a development initially perceived as supportive for the US Dollar (USD) given the former central banker’s reputation for a more restrictive policy stance.

On the macroeconomic front, the latest US data released on Wednesday provided indirect support to Silver. The Automatic Data Processing (ADP) report shows that private-sector job creation in the United States totaled just 22,000 in January, well below market expectations. This reading confirms a gradual cooling of the labor market, even as wage growth remains relatively stable. Meanwhile, the Institute for Supply Management (ISM) Services Purchasing Managers Index (PMI) held steady at 53.8, slightly above forecasts, though its Employment and New Orders components declined, pointing to some loss of economic momentum.

Against this backdrop, investors continue to expect the Federal Reserve to keep interest rates unchanged at its upcoming meetings, while leaving the door open to policy easing later in the year should economic conditions deteriorate further. These expectations cap the upside in the US Dollar and enhance the appeal of Silver, a non-yielding asset that tends to benefit from lower real rate prospects and heightened macroeconomic and geopolitical uncertainty.

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.