Silver advances above $73.50 as traders await Fed rate decision

Silver price climbs to near $73.85 in Wednesday’s early European session.
All eyes will be on the Fed interest rate decision on Wednesday, with no change in rate expected.
Trump asked aides to prepare for an extended blockade of Iran.

Lallalit Srijandorn FXStreet

Silver price (XAG/USD) rises to around $73.85 during the early European trading hours on Wednesday. Markets might turn cautious ahead of the US Federal Reserve (Fed) interest rate decision. Traders will also closely monitor the development surrounding the ongoing conflict between the US and Iran.

The Fed is expected to keep interest rates steady between 3.50% and 3.75% amid economic uncertainty and inflation risks. Jerome Powell’s press conference will be closely watched as it could give signals on whether the Fed may shift its stance on future rate cuts or hikes. Any hawkish comments from policymakers could underpin the US Dollar (USD) and weigh on the USD-denominated commodity price.

Escalating US–Iran tensions and the closure of the Strait of Hormuz have fueled inflation fears and increased the likelihood of "higher-for-longer" interest rates, which reduces the appeal of non-yielding assets like silver.

The Wall Street Journal reported on Wednesday that US President Donald Trump instructed aides to prepare for an extended blockade of Iran. The report stated that Trump opted to continue squeezing Iran’s economy and oil exports by preventing shipping to and from its ports.

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.

Author

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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