Silver Price Forecast: XAG/USD falls to near $57.00 amid Middle East tensions

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Silver price (XAG/USD) extends its losses for the second successive day, trading around $57.00 per troy ounce during the Asian hours on Thursday. The price of the non-yielding white metal faces significant challenges as rising US-Iran tensions boost oil prices and spark fresh inflation concerns.

Silver struggles as rising US-Iran tensions in the Strait of Hormuz push oil prices higher, threatening prolonged Fed interest rates.
June CPI and PPI reports fell below market expectations, temporarily easing immediate rate-hike fears.
A shifting Fed outlook drops September rate-hike odds to 44%, though recent military escalations remain unpriced.

The Guardian reported that the US Central Command (CENTCOM) launched another wave of strikes in a concerted effort to keep the critical Strait of Hormuz waterway open. In a direct escalation of hostilities, CENTCOM confirmed that US aircraft fired missiles into an oil tanker’s smokestack within the strategic passage, effectively disabling the vessel and keeping global markets on edge. When questioned on whether Iran faces a strict timeline before the US begins targeting domestic infrastructure, such as Iranian bridges, US President Donald Trump stated to reporters that he "does not like giving deadlines."

Amid this escalating conflict in the Middle East, traders are closely assessing the Federal Reserve's policy outlook in light of recently softened US inflation data. Tuesday’s US Consumer Price Index (CPI) declined to 3.5% in June from the three-year high of 4.2% set in May, coming in well below the market expectation of 3.8%. This weaker consumer inflation data initially helped reduce immediate concerns that the Fed would soon raise interest rates.

Further supporting this cooling trend, Wednesday's data showed the US Producer Price Index (PPI) declined to 5.5% on a yearly basis in June, down from 6% in May and below the market expectation of 6.2%. On a monthly basis, the PPI dropped by 0.3%, a notable shift from the 0.6% increase recorded in May and an improvement compared to analysts' estimates of no change.

Consequently, markets scaled back expectations for a Fed rate hike in September, with the implied probability falling to around 44% from 50% just a day earlier. However, because the interim peace agreement reached last month has effectively unraveled, June’s inflation data does not yet capture the economic impact of this latest military escalation between the US and Iran.

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.