Silver Price Forecast: XAG/USD slips to near $66.00 on Fed hike fears, oil surge
- Silver depreciates as surging oil prices and Middle East uncertainty raise expectations for a Fed rate hike.
- Non-yielding Silver slips as Treasury yields rise ahead of crucial upcoming US inflation data.
- Robust solar panel production and record Chinese ore imports continue to back physical demand for the white metal.
Silver price (XAG/USD) depreciates after two days of gains, trading around $66.00 per troy ounce during the Asian hours on Tuesday. The price of non-yielding Silver has taken a hit recently as rising oil prices spark renewed inflation fears and heighten expectations for interest rate hikes.
Markets remain deeply cautious due to ongoing uncertainty surrounding a potential deal between the United States (US) and Iran to end the conflict and reopen the strategic Strait of Hormuz. This geopolitical tension has driven a sharp rally in crude oil, which in turn has pushed Treasury yields higher.
Meanwhile, concerns are growing that the Federal Reserve (Fed) may feel compelled to raise rates sooner rather than later, even against the backdrop of a cooling labor market. Investors are now closely watching upcoming inflation data this week to gauge the Fed's next move, with the CME FedWatch Tool showing that market-implied odds of a 25-basis-point Fed rate hike in September have climbed above 51%, up from 44.4% just a day prior.
Despite these immediate headwinds, the outlook for the white metal isn't entirely dim, as strong industrial demand could soon provide a solid floor for prices. Silver continues to benefit from major global initiatives, particularly the expanding production of solar panels and upgrades to electrical grids. Underscoring this robust physical demand, recent trade data revealed that Chinese imports of silver-bearing ores experienced a massive surge, jumping 62.5% year-over-year in June to reach 219,000 tonnes.
Silver price pulled back after hitting seven-week highs on Monday amid a rally in gold fueled by improving investment demand for precious metals. According to TD Securities, “precious metals hit pause,” with the yellow metal “holding gains after the weaker jobs numbers further questioned the probability of coming Fed hikes.” The bank’s commodity strategists note that the softer US labor data has eased perceived policy tightening risks, helping to underpin gold prices even as broader momentum in the complex stalls.
Silver FAQs
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.
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.
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.
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.