Silver Price Forecast: XAG/USD holds gains near $87.00 despite fading Fed cut bets

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Silver price (XAG/USD) pares its recent losses registered in the previous session, trading around $86.90 per troy ounce during the European hours on Thursday.

Silver’s upside may be limited as surging oil prices boost inflation risks and reduce Fed rate-cut expectations.
Oil rises as fears of a prolonged Iran war overshadow coordinated reserve releases by major economies.
Silver may face challenges as a stronger US Dollar reduces expectations of Federal Reserve interest rate cuts.

Silver price (XAG/USD) pares its recent losses registered in the previous session, trading around $86.90 per troy ounce during the European hours on Thursday. However, the upside of the non-yielding metal could be restrained as the recent surge in oil prices heightened inflationary risks and reduced the likelihood of Federal Reserve (Fed) interest rate cuts. It’s worth noting that higher interest rates raise bond yields, increasing the opportunity cost of holding silver and reducing investment demand.

West Texas Intermediate (WTI) oil price extends its gains for the third successive session, trading around $91.50 at the time of writing. Oil prices climbed as fears of a prolonged Iran war overshadowed a coordinated oil reserve release by major economies. Markets also viewed the emergency supply as insufficient even after the International Energy Agency agreed to its largest-ever release of 400 million barrels.

Iran’s Islamic Revolutionary Guard Corps (IRGC) said it launched a joint operation with Lebanon's Hezbollah against targets in Israel, Jordan, and Saudi Arabia. Bahrain's Interior Ministry said on Thursday that Iran has targeted fuel tanks at a facility in Muharraq Governorate, one of Bahrain’s four administrative regions.

The upside of the dollar-denominated Silver could be restrained as the US Dollar (USD) remains stronger amid the dimming likelihood of Federal Reserve (Fed) interest rate cuts. The stronger US Dollar reduces the demand for the precious metal as it becomes expensive for foreign buyers.

Additionally, the February US Consumer Price Index (CPI) released on Wednesday showed inflation rising 0.3% month-over-month (MoM) and 2.4% year-over-year (YoY), largely in line with market expectations. Core CPI, which excludes food and energy, increased 0.2% MoM and 2.5% YoY.

The relatively steady inflation figures reduced fears of a sudden surge in price pressures and reinforced expectations that the Federal Reserve may keep interest rates steady in the near term. Analysts note that the latest CPI report does not yet fully reflect the recent surge in oil prices caused by geopolitical developments. US Personal Consumption Expenditures (PCE) will be eyed 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.