Silver price advances on Asian demand, geopolitical tensions despite firm US Dollar

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Silver (XAG/USD) advances on Wednesday and trades around $88.65 at the time of writing, up 2.40% on the day. The white metal remains supported by strong Asian demand, despite the rebound in the US Dollar (USD) and higher US Treasury yields, which generally limit the appeal of non-yielding assets.

Silver advances on Wednesday, supported by robust physical demand in China and persistent buying across Asian markets.
Tensions in the Middle East and expectations surrounding the Fed continue to support interest in precious metals.
TD Securities highlights that elevated Chinese premiums and import flows are supporting Silver’s bullish momentum.

The bullish move in Silver comes amid persistent geopolitical tensions in the Middle East, as negotiations between the United States (US) and Iran remain deadlocked. Concerns over disruptions to energy supply continue to fuel global inflationary pressures, reinforcing investor interest in precious metals.

The latest US inflation data also strengthened expectations that the Federal Reserve (Fed) could maintain a restrictive monetary policy for longer. The US Consumer Price Index (CPI) accelerated to 3.8% YoY in April, its highest level since May 2023, while the Producer Price Index (PPI) rose 6% YoY. This dynamic is pushing US Treasury yields higher and supporting the Greenback.

Despite this less favorable environment for precious metals, Silver continues to show resilience. Strategists at TD Securities believe Chinese demand is currently acting as a key driver for the market. The bank noted that top traders on the Shanghai Futures Exchange (SHFE) have remained buyers of Silver in recent weeks, while Chinese premiums continue to stay elevated.

TD Securities also added that the import arbitrage has remained open several times recently, suggesting that Asian demand is supporting Silver’s upside beyond systematic Commodity Trading Advisor (CTA) flows.

This strength in physical demand is helping offset the negative impact of a stronger US Dollar and expectations that the Fed could keep interest rates higher for longer.

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.