Silver Price Forecast: XAG/USD inches lower to near $68.00 amid rising Fed rate hike bets

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Silver price (XAG/USD) pares its recent gains from the previous day, trading around $67.90 per troy ounce during the Asian hours on Tuesday. Uncertainty in the Middle East and rising bets on a United States (US) interest rate hike continue to keep Silver on the defensive.

Silver falls due to Middle East uncertainty and rising bets on a Fed interest rate hike.
Despite a halt in attacks, long-term stability is elusive as Netanyahu declared the war with Iran and Hezbollah "has not yet ended."
The non-yielding Silver loses appeal as Middle East tension and strong US jobs data fuel Fed rate hike expectations.

Hopes for peace grew after Iran and Israel agreed to halt mutual attacks following an intervention by US President Donald Trump. However, long-term stability remains elusive. Israeli Prime Minister Benjamin Netanyahu declared that the war against Iran and Hezbollah "has not yet ended," even as he claimed both adversaries are weaker than ever.

While Iran’s military confirmed it has stopped its strikes, its central command warned of "much harsher and more crushing actions" if Israel resumes operations, including those in southern Lebanon.

This lingering geopolitical friction, paired with robust US jobs data, has stoked inflation fears and reinforced expectations of higher Federal Reserve (Fed) interest rates. As a non-yielding asset, Silver loses its luster when rates climb.

According to the CME FedWatch tool, traders have raised the probability of a December quarter-point rate hike to 42%, up from 14% a month ago. The market is now bracing for Wednesday's US Consumer Price Index (CPI) and Thursday's Producer Price Index (PPI) data to gauge the Fed's next move.

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.