Silver edges lower as US‑Iran talks, Fed caution weigh on safe‑haven demand
- Silver edges lower on Thursday as investors remain cautious while awaiting progress in Washington-Tehran negotiations.
- Oil-driven inflation risks support a cautious Fed stance, limiting the upside for precious metals.
- Ongoing disruptions to energy supply in the Middle East continue to provide an underlying floor for metals.
Silver (XAG/USD) trades slightly lower on Thursday, hovering around $78.60 at the time of writing, down 0.49% on the day. The white metal nevertheless remains close to its recent highs, as investors adopt a wait-and-see stance amid ongoing negotiations surrounding the war between the United States (US) and Iran.
Markets are closely watching diplomatic signals regarding a possible agreement between Washington and Tehran. Recent reports suggest that an extension of the ceasefire could be considered to allow more time for negotiations, which is modestly improving market risk sentiment. This prospect temporarily reduces demand for safe-haven assets such as Silver.
However, uncertainty remains elevated. Several officials indicated that progress has been made in some areas, but significant disagreements persist, particularly on nuclear-related issues. In this environment, investors remain cautious and avoid taking strong directional positions on precious metals.
Meanwhile, developments in energy prices remain a key factor for Silver. Tensions around the Strait of Hormuz continue to disrupt global Oil supply, keeping Crude prices elevated despite a recent pullback. This situation fuels concerns about an energy-driven inflation shock.
These inflationary pressures complicate the task of the Federal Reserve (Fed), which may be forced to maintain a restrictive monetary policy for longer than previously expected. Higher interest rates typically limit the appeal of non-yielding assets such as Silver.
Fed of St. Louis President Alberto Musalem said that current supply shocks risk undermining the Fed’s inflation and employment objectives. He added that the current interest rate range is likely appropriate for the time being, noting that the Oil shock could keep core inflation close to 3% through the end of the year.
In this context, developments in US-Iran negotiations and the trajectory of Oil prices are likely to remain key drivers for Silver in the near term.
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.
Author
Ghiles Guezout
FXStreet
Ghiles Guezout is a Market Analyst with a strong background in stock market investments, trading, and cryptocurrencies. He combines fundamental and technical analysis skills to identify market opportunities.
