Silver Price Forecast: XAG/USD trades higher around $58 in countdown to US CPI data

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Silver price (XAG/USD) is up 0.75% to near $58 during the European trading session on Tuesday.

Silver price rises to near $58.00 ahead of the US inflation data for June.
Fed’s Waller stresses the need to tighten monetary conditions further if inflation rises again.
Investors also await Fed Chair Warsh’s testimony before Congress.

Silver price (XAG/USD) is up 0.75% to near $58 during the European trading session on Tuesday. The white metal holds recovery move seen from below $57.00, earlier in the day, with investors awaiting the United States (US) Consumer Price Index (CPI) data for June, which will be published at 12:30 GMT.

Investors will closely track the US inflation data as the Federal Open Market Committee (FOMC) minutes of the June policy meeting, released last week, showed that policymakers see high inflation as “dominant risk”.

On Monday, Fed Governor Christopher Waller also said that another hot inflation figure would be “signal”, not a noise, about the need to tighten monetary conditions further.

According to estimates, the US headline CPI growth cooled down to 3.8% Year-on-Year (YoY) in June from 4.2% in May, with core figures rising steadily by 2.9%.

Signs of price pressure accelerating further would boost hawkish Federal Reserve (Fed) interest rate expectations, a scenario that bodes poorly for non-yielding assets, such as Silver.

Later in the day, investors will also pay close attention to comments from Federal Reserve (Fed) Chair Kevin Warsh’s first testimony before the US House Financial Services Committee.

On the geopolitical front, surging oil prices due to escalating aggression between the US and Iran, and Washington’s claim for toll fee from ships passing through the Strait of Hormuz would limit the Silver price’s upside.

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.