Silver rallies to fresh weekly high, above $77.00 as USD plummets on US-Iran ceasefire

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Silver (XAG/USD) rallies to a fresh weekly high during the Asian session on Wednesday, with bulls now looking to build on the momentum beyond the $77.00 mark amid a broad-based US Dollar (USD) selloff.

Silver catches aggressive bids on Wednesday and draws support from a combination of factors.
Trump suspends Iran strikes for two weeks, weighing on the USD and supporting the XAU/USD.
Tumbling Oil prices ease inflation fears and temper rate hike bets, benefiting the white metal.

US President Donald Trump announced last Tuesday that he would suspend planned military strikes against Iran for two weeks, subject to Tehran agreeing to fully reopen the Strait of Hormuz. In response, Iran stated that it has accepted a two-week ceasefire, with negotiations set to begin on Friday in Islamabad, Pakistan. The optimism boosts investors' confidence and weighs heavily on the Greenback, which, in turn, is seen benefiting the USD-denominated commodities, including Silver.

Meanwhile, Iran’s foreign minister added that safe passage through the key waterway will be possible for a period of two weeks, triggering a steep decline in Crude Oil prices. This helps ease inflationary concerns and tempers Federal Reserve (Fed) rate hike bets, exerting additional pressure on the USD and further benefiting the non-yielding white metal. However, the lack of follow-through buying warrants some caution for the XAG/USD bulls before positioning for further gains.

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.

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