Silver price advances on US-Iran agreement, hawkish Fed limits upside

Silver gains more than 1% on Thursday and trades around $68.10, supported by improving market sentiment.
The agreement between the US and Iran boosts demand for precious metals despite easing geopolitical concerns.
Expectations of Federal Reserve rate hikes continue to limit the upside potential of the white metal.

Ghiles Guezout FXStreet

Silver (XAG/USD) advances toward $68.10 on Thursday, up 1.05% on the day at the time of writing. The white metal is rebounding after finding support from positive developments surrounding negotiations between the United States (US) and Iran, while investors continue to assess the implications of the latest US monetary policy decision.

US President Donald Trump and Iranian President Masoud Pezeshkian signed a memorandum of understanding aimed at ending hostilities between the two countries and reopening the Strait of Hormuz. This diplomatic breakthrough has contributed to lower Oil prices, reducing concerns about energy-driven inflation and improving overall market sentiment.

At the same time, the Federal Reserve (Fed) left its benchmark interest rate unchanged at its June meeting while maintaining a hawkish tone. Under the leadership of new Chair Kevin Warsh, the central bank removed references to a dovish bias and raised its interest rate projections for year-end. Markets are now pricing in a strong chance of at least one rate hike before the end of the year.

This outlook supports US Treasury yields and the US Dollar (USD), which tends to limit the appeal of non-yielding assets such as Silver. A stronger Greenback also reduces purchasing power for international investors, potentially weighing on demand for precious metals.

Despite this monetary headwind, Silver continues to benefit from its dual role as both a precious and industrial metal. Investors are now focused on upcoming US economic data, including the Philadelphia Fed Manufacturing Index and Weekly Initial Jobless Claims, which could influence monetary policy expectations and drive further moves in both the US Dollar and Silver.

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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