Silver price on track for weekly decline as Middle East tensions fuel rate-hike worries

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Silver (XAG/USD) trades around $55.50 at the time of writing on Friday, virtually unchanged on the day, but remains on track to post a weekly loss of nearly 7%.

Silver trades around $55.50 on Friday, virtually unchanged on the day, but remains on track for a weekly loss of nearly 7%.
Rising Middle East tensions are supporting Oil prices and reviving inflation and interest rate concerns.
Markets continue to expect central banks to keep monetary policy restrictive for longer.

Silver (XAG/USD) trades around $55.50 at the time of writing on Friday, virtually unchanged on the day, but remains on track to post a weekly loss of nearly 7%. Despite an increasingly tense geopolitical backdrop, the white metal remains under pressure as rising interest rate expectations offset demand for safe-haven assets, with investors concerned that higher energy prices could reignite inflationary pressures.

Middle East tensions continue to support Oil prices. Reuters reported that Iran has instructed Yemen's Houthis to stand ready to close the strategic Red Sea Oil shipping route if the United States (US) strikes Iranian energy infrastructure. At the same time, several explosions have been reported across multiple Iranian cities as the confrontation between Washington and Tehran continues to escalate.

These risks to global energy supplies are fueling concerns over another wave of inflation. Against this backdrop, investors believe major central banks could be forced to keep interest rates higher for longer, a scenario that weighs on non-yielding precious metals such as Silver.

In the United States, the latest economic data has reinforced this view. Weekly Initial Jobless Claims came in at 208K, below expectations, while the Philadelphia Federal Reserve (Fed) Manufacturing Index rose to its highest level since November 2021, highlighting the resilience of the US economy.

Several Fed officials have also maintained a cautious stance. Fed of Dallas President Lorie Logan said progress on inflation remains insufficient and that monetary tightening could still be necessary. Meanwhile, Fed Vice Chair Philip Jefferson said he would be open to raising interest rates if inflation fails to continue slowing down.

This combination of geopolitical tensions, rising Oil prices and expectations for a more restrictive monetary policy continues to limit Silver's appeal, even as safe-haven demand remains supported.

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.