Silver Price Forecast: XAG/USD declines below $58 amid uncertainty over US-Iran peace prospects

Silver price declines below $58.00 amid doubts over the sustainability of US-Iran peace.
The US negotiating team declines to meet Iran directly.
Investors await the US ADP Employment Change and the ISM Manufacturing PMI data for June.

Sagar Dua FXStreet

Silver price (XAG/USD) trades almost 1% lower, slightly below $58.00, during the Asian trading session on Wednesday. The Silver price faces selling pressure as investors turn cautious towards the sustainability of peace between the United States (US) and Iran after Washington refused to meet with Tehran despite reaching Oman.

On Tuesday, US negotiations reached Doha for talks with Iran regarding Tehran’s demand for toll system near the Strait of Hormuz, a vital passage to almost 20% of global energy supply. However, the US team said that it will only meet with mediators and not Tehran’s negotiators. This has led to continued uncertainty over whether global ships could continue using the chokepoint without paying any fees.

Such a scenario could lift oil prices again and eventually force traders to raise hawkish Federal Reserve (Fed) bets further. Increasing prospects of higher Fed interest rates bode poorly for non-yielding assets, such as Silver.

Meanwhile, investors await the US Nonfarm Payrolls (NFP) data for June, which will be released on Thursday.

In Wednesday’s session, market participants will pay close attention to the US ADP Employment Change and the ISM Manufacturing PMI data for June, which will be released during the North American session.

According to estimates, the US private sector created 113K fresh jobs, slightly lower than 122K in May. The ISM Manufacturing PMI is expected to remain steady at 54.0.

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

Sagar Dua

FXStreet

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.

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