Silver Price Forecast: XAG/USD drops to near $58 even as traders scale back hawkish Fed bets

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Silver price (XAG/USD) is down 0.6% to near $58.00 during the European trading session on Wednesday.

Silver price falls to near $58.00 despite market participants dialing down Fed rate hike expectations.
Both the US headline and core CPI growth cooled down in June.
Higher oil prices will likely limit the upside in the Silver price.

Silver price (XAG/USD) is down 0.6% to near $58.00 during the European trading session on Wednesday. The white metal faces slight selling pressure despite traders scaling back hawkish Federal Reserve (Fed) bets, following the release of the United States (US) Consumer Price Index (CPI) data for June.

The CME FedWatch tool shows that the odds of the Fed raising interest rates in the policy meeting this month have eased to 16.6% from 41.7% recorded on Monday.

Theoretically, signs of easing hawkish Fed prospects bode well for non-yielding assets, such as Silver.

On Tuesday, the US CPI report showed that the headline and core inflation decelerated significantly to 3.5% and 2.6% year-on-year (YoY), respectively.

Meanwhile, higher oil prices due to renewed exchange of attacks between the United States (US) and Iran will likely keep the upside in the Silver price limited. Escalated energy prices have de-anchored global inflation projections, a scenario that forces central banks to tighten monetary conditions.

Going forward, investors will focus on the US Producer Price Index (PPI) data for June, which will be published at 12:30 GMT.

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.