Silver Price Analysis: XAG/USD rebound loses momentum amid restrictive policy risks

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Silver (XAG/USD) moves higher on Thursday, trading around $73.40 at the time of writing, up 2.81% on the day, after undergoing a marked pullback in recent weeks. This technical rebound comes as the white metal attempts to stabilize following the rejection near the $80 threshold in mid-April.

Silver rebounds above $73 after a recent correction phase.
Higher-for-longer rate expectations continue to weigh on non-yielding metals.
OCBC analysts highlight weakening momentum after the failed break above $80.

The move remains fragile, however, in a macroeconomic environment that is still unfavorable. Persistently high Oil prices, driven by geopolitical tensions in the Middle East, are sustaining inflation concerns. This dynamic is reinforcing expectations that central banks will maintain restrictive monetary policies for longer, reducing the appeal of non-yielding assets such as Silver.

The Federal Reserve (Fed) confirmed this cautious stance by keeping interest rates unchanged on Wednesday, while emphasizing uncertainty surrounding the inflation outlook, particularly due to elevated energy costs. This position is strengthening expectations that financial conditions will remain tight for an extended period, or even tighten further if inflationary pressures persist.

In this context, analysts at OCBC note that Silver’s bullish momentum has clearly weakened after the rejection below $80. According to the analysts, the recent correction reflects both profit-taking and a less supportive macro backdrop, marked by rising rate expectations and a firmer US Dollar.

In addition, Silver’s dual nature as both a safe-haven asset and an industrial metal adds another layer of volatility. Uncertainty surrounding global growth and industrial demand, particularly in the photovoltaic sector, is limiting investors’ appetite for aggressive long positions.

Despite today’s rebound, the balance of risks remains tilted to the downside in the medium term, as long as monetary conditions stay restrictive and inflationary pressures persist.

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.