Silver Price Forecast: XAG/USD depreciates to near $33.50 due to solid US Dollar

Silver price loses ground due to the robust performance of the US Dollar (USD) and higher Treasury yields.
The US Dollar gains ground as recent data bolster the chances of the Fed adopting a less-dovish rates policy.
The Silver may appreciate due to market caution amid uncertainties regarding the upcoming US presidential election.

Akhtar Faruqui FXStreet

Silver price (XAG/USD) extends its losses for the third successive session, trading around $33.50 during Friday’s Asian hours. The downside of the precious metal Silver price could be attributed to the robust performance of the US Dollar (USD) and higher Treasury yields.

On Thursday, data indicated that US unemployment claims dropped significantly in late October, underscoring the strength of the labor market. Additionally, a rise in the S&P PMI further highlights robust momentum in the private sector.

The strong US economic data bolster the likelihood that the Federal Reserve (Fed) will take a less aggressive approach to interest rate cuts than previously thought. According to the CME FedWatch Tool, there is a 97% probability of a 25-basis-point rate cut by the Fed in November, with no expectation of a larger 50-basis-point cut.

Despite the challenges, safe-haven Silver may find upward support due to uncertainties surrounding the upcoming US presidential election. A recent Reuters/Ipsos poll showed that Vice President Kamala Harris holds a slight lead of 46% to 43% over former President Donald Trump in a six-day poll that closed on Monday.

Silver price may gain support from safe-haven flows amid uncertainties regarding the Middle East situation. Traders watch for Israel's response to Iran's missile attack on October 1. In parallel, US and Israeli officials are preparing to resume talks on a potential ceasefire and the release of hostages in Gaza in the coming days.

US Secretary of State Antony Blinken stated Thursday that the United States does not support a prolonged Israeli campaign in Lebanon, while France has advocated for an immediate ceasefire and diplomatic efforts.

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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