Silver loses ground as hopes for US-Iran deal improve risk appetite

Silver declines 1.7% on Tuesday, trading around $57.40 at the time of writing.
Hopes for negotiations between the US and Iran are reducing demand for safe-haven assets.
Investors await the Federal Reserve's monetary policy decision later this week.

Ghiles Guezout FXStreet

Silver (XAG/USD) trades around $57.40 on Tuesday at the time of writing, down 1.7% on the day. The white metal is under pressure as the US Dollar (USD) loses some strength and investors reduce their exposure to safe-haven assets ahead of the Federal Reserve's (Fed) monetary policy decision.

Market sentiment improves following the latest comments from US President Donald Trump, who says the United States (US) is holding "good talks" with Iran. The US President also says he wants to avoid targeting critical infrastructure such as power plants and bridges, while warning that Iran can no longer break agreements. These remarks fuel hopes of a de-escalation in the Middle East conflict, contributing to lower Oil prices and easing concerns over renewed inflationary pressures.

Despite the improvement in geopolitical sentiment, risks have not disappeared completely. Donald Trump warns that US military strikes could resume if negotiations fail, while several security incidents reported in Saudi Arabia, Jordan and Iraq highlight that regional tensions remain elevated.

Investors are also digesting several US economic releases published on Tuesday. The Conference Board Consumer Confidence Index eased to 90.8 in July from 92.2 previously, reflecting a slight deterioration in household sentiment. Meanwhile, the four-week average of the Automatic Data Processing (ADP) NER Pulse report shows that private-sector job creation slowed to just 15K jobs per week in mid-July, confirming a gradual cooling in the labor market.

Attention now turns to the Fed's policy decision on Wednesday. Markets widely expect policymakers to leave interest rates unchanged, but investors will closely monitor the central bank's statement and comments from Fed Chair Jerome Powell for fresh clues on the future path of monetary policy.

(This story was corrected at 16:31 GMT to say in the first paragraph that the US Dollar is losing strength not regaining strength)

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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