Silver retreats as Middle East tensions bolster Dollar, higher-for-longer rate bets

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Silver (XAG/USD) trades lower on Monday, slipping to around $79.75 at the time of writing and losing 1.30% on the day.

Silver retreats on Monday as geopolitical tensions in the Middle East strengthen the US Dollar and trigger profit-taking.
Iran closes the Strait of Hormuz again, pushing Oil prices higher and reviving global inflation concerns.
Rising energy prices reinforce expectations that central banks may keep interest rates higher for longer.

Silver (XAG/USD) trades lower on Monday, slipping to around $79.75 at the time of writing and losing 1.30% on the day. The precious metal retreats after reaching a one-month high above $83 on Friday, as investors reassess geopolitical risks linked to the escalating confrontation between the United States (US) and Iran.

Market sentiment remains fragile after Iran announced the renewed closure of the Strait of Hormuz, a key maritime route for nearly 20% of global Oil supply. The move comes as retaliation against the ongoing naval blockade imposed by Washington on Iranian ports. The closure triggered a sharp rebound in energy prices, with West Texas Intermediate (WTI) Oil rising towards $88 per barrel.

The geopolitical situation deteriorated further after the US Navy intercepted and boarded an Iranian cargo vessel in the Gulf of Oman, an action Tehran described as “armed piracy”. In response, Iranian officials announced that they would skip the next round of negotiations planned in Pakistan, raising doubts about the durability of the current ceasefire framework.

Against this backdrop, demand for the US Dollar (USD) has strengthened as investors seek safety amid rising geopolitical uncertainty. At the same time, the surge in Oil prices is reviving concerns about global inflation. Higher energy costs could complicate the task of central banks, particularly the Federal Reserve (Fed), as they attempt to balance slowing growth with persistent price pressures. The prospect that interest rates could remain elevated for longer reduces the appeal of non-yielding assets like Silver.

Looking ahead, traders remain focused on developments in the Middle East war for fresh directional signals. On the macroeconomic front, attention this week will turn to US Retail Sales data and the preliminary S&P Global Purchasing Managers Index (PMI) surveys, which could provide additional insight into the health of the US economy and influence expectations for future Fed policy.

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.