Silver price declines as stronger Dollar, US-Iran tensions weigh on precious metals

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Silver (XAG/USD) trades around $74.50 on Wednesday at the time of writing, down 0.88% on the day. The white metal is facing selling pressure as the US Dollar (USD) continues to recover, supported by escalating geopolitical tensions in the Middle East.

Silver declines on Wednesday as the US Dollar rises for a third consecutive day.
Renewed tensions between the US and Iran reduce the appeal of precious metals.
Investors now await Friday’s US employment report for further clues on the monetary policy outlook.

The Silver market is being driven by the latest developments between the United States (US) and Iran. According to the US Central Command (CENTCOM), US forces intercepted several Iranian missiles and drones targeting regional facilities before carrying out defensive strikes against Iranian positions. This escalation has allowed Oil prices to extend their rebound and has reignited concerns about global inflationary pressures.

Higher energy prices tend to fuel inflation expectations, which in turn reduces market expectations for rapid monetary easing by the Federal Reserve (Fed). Against this backdrop, precious metals, which do not offer yields, lose some of their attractiveness among investors.

Market sentiment has also been influenced by the latest US labor market data. The Job Openings and Labor Turnover Survey (JOLTS) showed that job openings rose to 7.618M in April, significantly above market expectations of 6.88M. The data points to continued resilience in the US labor market and supports the view that the central bank may maintain a cautious stance regarding interest rate cuts.

Meanwhile, US President Donald Trump said on Wednesday that Iran had agreed not to pursue nuclear weapons and indicated that negotiations between Washington and Tehran remain ongoing with the involvement of Iran’s Supreme Leader. Despite these comments, investors remain cautious as the geopolitical situation continues to evolve.

Market attention now turns to the May Nonfarm Payrolls (NFP) report due on Friday.

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.