Silver Price Forecast: XAG/USD breaks below $30.50 due to a quest for a ceasefire in Gaza

Silver prices depreciate due to increased optimism following renewed efforts to secure a ceasefire deal in Gaza.
Mediators from Egypt and Qatar have conveyed Hamas's response to a proposal involving the release of hostages held in Gaza.
XAG/USD may limit its downside as the US Dollar may struggle due to rising expectations of the Fed reducing rates in 2024.

Akhtar Faruqui FXStreet

Silver price (XAG/USD) halts its five-day winning streak, trading around $30.40 per troy ounce during the European session on Thursday. The decline in the safe-haven metal's price is attributed to increased optimism following signs of renewed efforts to secure a ceasefire deal between Israel and Hamas, as reported by Reuters.

Mediators Egypt and Qatar delivered a response from Hamas to a proposal that includes the release of hostages held in Gaza and a ceasefire in the Palestinian enclave. Israel is currently studying the document, according to a statement released by Prime Minister Benjamin Netanyahu's office on behalf of the Mossad spy agency.

The XAG/USD pair may limit its downside as the US Dollar (USD) may struggle due to the softer US data raising speculations of the Federal Reserve (Fed) reducing interest rates in 2024. US ISM Services PMI fell sharply to 48.8 in June, marking the steepest decline since April 2020. This figure was well below market expectations of 52.5, following a reading of 53.8 in May.

Additionally, the ADP Employment report showed that US private businesses added 150,000 workers to their payrolls in June, the lowest increase in five months. This figure fell short of the expected 160,000 and was below the downwardly revised 157,000 in May.

On Tuesday, Powell said that the Fed is getting back on the disinflationary path. However, Powell wants to see further evidence before cutting interest rates as the US economy and the labor market remain strong, per Reuters.

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

Akhtar Faruqui

FXStreet

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

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