Silver falls as Trump renews Iran threats, boosts US Dollar ahead of Fed Minutes

Silver extends its decline for a third consecutive day after Donald Trump's latest remarks on Iran.
Rising geopolitical tensions push Oil prices higher, fueling inflation concerns and supporting the US Dollar.
Investors now await the Federal Reserve Minutes for fresh clues on the interest rate outlook.

Ghiles Guezout FXStreet

Silver (XAG/USD) extends its decline on Wednesday and trades around $58.45 at the time of writing. The white metal remains under pressure after comments from US President Donald Trump revived concerns about renewed conflict in the Middle East, supporting the US Dollar (USD) and US Treasury yields.

Donald Trump said that the memorandum of understanding aimed at ending the conflict with Iran is now "over," adding that he no longer wants to negotiate with Tehran. He also stated on Wednesday that the United States (US) could launch new strikes against Iran as early as tonight, saying a deal is not necessary and raising the possibility of targeting strategic infrastructure, including the country's electricity grid, water treatment facilities and Kharg Island, Iran's main Oil export terminal.

This renewed escalation has increased concerns about disruptions to global Oil supplies, with the Strait of Hormuz remaining at the center of market attention. Higher energy prices are reviving inflation expectations, which could increase the Federal Reserve's (Fed) room to tighten monetary policy and therefore weigh on non-yielding assets such as Silver.

Investors are now turning their attention to the release of the Fed June meeting Minutes, which could provide fresh guidance on the monetary policy outlook. Markets will assess whether policymakers remain willing to cut interest rates despite the risk that higher energy prices could sustain inflationary pressures.

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

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.

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