Silver Price Forecast: XAG/USD declines to near $80.00 as traders book profits

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Silver price falls to near $80.15 during the Asian trading hours on Wednesday. The white metal edges lower as traders book some profits ahead of the key US economic data later this week. Traders brace for the US ISM Services Purchasing Managers Index (PMI) report on Wednesday.

Silver price drifts lower to around $80.15 in Wednesday’s Asian session.
Traders lock in their profits ahead of the US December jobs data.
Venezuela shock and Fed rate cut bets could boost safe-haven assets like Silver.

The potential downside for the white metal might be limited amid rising bets on the US Federal Reserve (Fed) rate cuts. Fed funds futures are still pricing nearly an 82% chance that interest rates will remain on hold at the US central bank's next meeting on January 27 to 28, according to the CME FedWatch tool.

“Safe-haven demand and rising bets on Federal Reserve rate cuts are underpinning the market,” said Ricardo Evangelista, an analyst at ActivTrades.

Additionally, the US attack on Venezuela and the capture of its president, Nicolás Maduro, might increase demand for white metal as safe-haven assets. The US carried out a large-scale military strike against Venezuela on Saturday and announced that Venezuelan President Nicolas Maduro and his wife had been captured and flown out of the country. Maduro on Monday pleaded not guilty to US charges in a narco-terrorism case against him.

The US December jobs data will take center stage on Friday. These reports could offer some hints about the US economic outlook and influence Fed policy. The US Nonfarm Payrolls (NFP) are forecast to increase by 55,000 in December, while the Unemployment Rate is estimated to decline to 4.5% in December from 4.6% in November. In case of a stronger-than-expected outcome, this could lift the US Dollar (USD) and weigh on the USD-denominated commodity price in the near term.

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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