Silver price declines on strong Dollar, higher yields amid Middle East risk

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Silver (XAG/USD) starts the week on a negative note, trading around $73.50 at the time of writing, down 2.41% on Monday. The white metal is facing profit-taking amid a strengthening US Dollar (USD) and rising US Treasury yields.

Silver declines at the start of the week, pressured by a stronger US Dollar and rising yields.
Geopolitical tensions in the Middle East fuel risk aversion, supporting the US Dollar.
Hawkish monetary policy expectations continue to weigh on non-yielding assets.

Developments in the Strait of Hormuz are adding to market uncertainty. According to Iranian state-linked media, missiles were reportedly fired toward a United States (US) naval vessel near the strategic waterway after it allegedly ignored warnings from Iran’s Islamic Revolutionary Guard Corps. While US officials denied that any ship was hit, the incident highlights the fragility of the situation. In parallel, Washington has launched a naval initiative aimed at securing commercial shipping routes in the area, prompting Tehran to warn of potential retaliation in case of further military presence. The lack of progress in diplomatic talks between the two countries continues to keep tensions elevated.

However, unlike its usual role, this geopolitical backdrop is not providing sustained support to precious metals, as flows are primarily directed toward the US Dollar. The Greenback is benefiting from this defensive demand, further supported by higher US Treasury yields. This dynamic is directly weighing on Silver, a non-yielding asset, whose appeal diminishes when interest rates are expected to remain higher for longer.

Monetary policy expectations remain a key driver. Markets anticipate that the Federal Reserve (Fed) will maintain a cautious stance in response to persistent inflation risks, partly fueled by elevated energy prices linked to potential supply disruptions in the Strait of Hormuz. According to the CME FedWatch tool, investors are pushing back expectations for monetary easing while increasingly pricing in the possibility of tighter policy over the longer term.

In this context, the combination of a firm US Dollar, elevated yields, and a prolonged hawkish rate outlook continues to cap Silver’s upside potential. Investors now turn their attention to upcoming US macroeconomic data, particularly labor market and activity indicators, as well as speeches from Fed officials, for further clues on the future path of interest rates.

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.