Silver Price Forecast: XAG/USD declines amid strong US economic data, rising USD

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Silver (XAG/USD) trades lower on Thursday, falling toward $82.20 at the time of writing, down 1.18% on the day. The precious metal is under pressure as the US Dollar (USD) rebounds following the release of stronger-than-expected US economic data.

Silver weakens on Thursday as the US Dollar strengthens following upbeat US economic data.
Strong US indicators reduce expectations of an early interest rate cut from the Federal Reserve.
Rising geopolitical tensions in the Middle East continue to support demand for safe-haven assets.

The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is moving higher and approaches the 99.30 area, up 0.45% on Thursday. A stronger US Dollar tends to weigh on Silver, as the metal becomes more expensive for investors holding other currencies.

Several recent economic releases highlight the resilience of the US economy. The ADP Employment Change report showed that the private sector added 63K jobs in February, beating market expectations of 50K and sharply improving from the previous revised reading of 11K. At the same time, the Institute for Supply Management (ISM) reported that the Services Purchasing Managers Index (PMI) rose to 56.1 in February from 53.8 in the previous month, while economists had expected a slowdown to 53.5.

Additional labor market signals also point to underlying strength. Initial Jobless Claims in the US came in at 213K for the week ending February 28, slightly below expectations of 215K. Meanwhile, the Challenger, Gray & Christmas report showed a sharp decline in announced layoffs in February, although hiring plans remain cautious as companies remain wary about expanding their workforce.

Against this backdrop, expectations for an early monetary easing cycle from the Federal Reserve (Fed) have been scaled back. According to estimates based on the CME FedWatch tool, markets increasingly expect the first rate cut to arrive in September, while the chance of the Fed keeping rates unchanged at the July meeting now stands above 50%, compared to 33.4% a week earlier. Higher interest rates generally reduce the appeal of non-yielding assets such as Silver.

Geopolitical developments are nevertheless providing some support to the precious metal. Escalating tensions in the Middle East, involving the United States, Israel, and Iran, are maintaining a degree of safe-haven demand. Hopes of a potential diplomatic opening briefly emerged following reports suggesting indirect contact between Tehran and Washington, but Iranian authorities later denied the claims, leaving the outlook for the conflict uncertain.

Investors are now focusing on upcoming key US data releases, including the Nonfarm Payrolls (NFP) report and Retail Sales figures on Friday. These indicators could offer further clues about the strength of the US labor market and the likely path of monetary policy from the Federal Reserve.

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.