Silver Price Forecast: XAG/USD trades lower near $74.60 as oil prices extend recovery

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Silver price (XAG/USD) is down 0.6% to near $74.60 during the European trading session on Wednesday. The precious metal faces selling pressure as oil prices gain for the third straight trading day amid renewed tensions between the United States (US) and Iran.

Silver price (XAG/USD) declines to near $74.60 as US-Iran renewed tensions boost oil prices.
The US forces intercepted Iranian missiles and carried out strikes in self-defense.
Upbeat US JOLTS Job Openings data for April has also weighed on the Silver price.

At press time, the WTI Oil price is up 1.4% higher to near $93.00 the highest level seen in over a week.

US-Iran tensions have renewed due to the exchange of attacks between them on late Tuesday. The US Central Command (CENTCOM) said on Tuesday that it had intercepted and defeated a series of Iranian missile and drone attacks targeting regional neighbors, including Kuwait and Bahrain, while also carrying out self-defense strikes on Iran’s Qeshm Island in the Strait of Hormuz.

Oil prices and precious metals have demonstrated a negative relationship since the onset of the Middle East war, as rising energy prices boosted inflation globally and forced traders to price out the likelihood of interest rate cuts by the Federal Reserve (Fed) for the year.

Meanwhile, upbeat US JOLTS Job Openings data for April has come in stronger-than-projected. The data showed that US employers posted 7.618 million fresh jobs, significantly higher than 6.88 million estimates.

Going forward, investors will focus on the US Nonfarm Payrolls (NFP) data for May, which will be released 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.