Silver Price Forecast: XAG/USD falls to near $59.00 amid rising US-Iran strikes

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Silver price (XAG/USD) extends its gains for the second successive day, trading around $59.00 per troy ounce during the Asian hours on Monday.

Silver drops as US-Iran strikes drive oil higher, fueling fears of inflation and rising interest rates.
CENTCOM launched targeted strikes on Sunday evening to weaken Iran's ability to attack civilian vessels.
Tehran refuses further negotiations until Washington honors previous commitments on transit safety and Iranian oil exports.

Silver price (XAG/USD) extends its gains for the second successive day, trading around $59.00 per troy ounce during the Asian hours on Monday. The price of the non-yielding white metal falls as escalating United States (US)-Iran missile strikes push oil higher, sparking fears of inflation and higher interest rates.

The US Central Command (CENTCOM) launched additional strikes on Sunday evening, aimed at weakening Iran's capability to target civilian vessels navigating the waterway. US forces have hit more than 300 Iranian targets over a three-night span, including 140 on Saturday alone, while Washington and Tehran issued conflicting declarations regarding whether the strait remains open to maritime traffic.

This latest surge in hostilities has effectively reversed a portion of the market losses recorded last week, which had been driven by an interim US-Iran peace agreement that initially fueled expectations of increased Middle Eastern energy supplies. The sudden military escalation has also severely dampened hopes for continued diplomacy. Tehran is now digging in, insisting that Washington must fully honor its previous commitments regarding shipping transit and the normalization of Iranian oil exports before any further negotiations can resume.

The US Consumer Price Index (CPI) inflation data will be published later on Tuesday for further clues on the Federal Reserve's (Fed) policy outlook. The headline CPI is expected to decline by 0.1% MoM in June, while the core CPI is projected to show a rise of 0.3% during the same period.

Markets are currently positioning for the Federal Reserve to deliver one more interest-rate increase before the year concludes. Meanwhile, all eyes will be on Fed Chair Kevin Warsh as he makes his first official appearance before the US Congress this Tuesday.

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.