Silver Price Forecast: XAG/USD drops below $32.50 due to softer China’s economic data

Silver price declines as softer economic data from China fuel demand concerns.
China’s Producer Price Index fell 2.2% YoY, underscoring persistent deflationary pressures in the country’s industrial sector.
The downside risks for the safe-haven metal remain limited as trade tensions intensify following China’s 100% tariff on Canadian imports.

Akhtar Faruqui FXStreet

Silver price (XAG/USD) extends its losing streak for a third consecutive session, trading around $32.40 per troy ounce during Asian hours on Monday. The prices of the grey metal depreciate as softer economic data from China fuel demand concerns.

China’s Producer Price Index (PPI) dropped 2.2% year-over-year, following a 2.3% decline in the previous two months. This represents the slowest contraction since August 2024 but highlights persistent deflationary pressures in China's industrial sector, where Silver demand is significant.

Moreover, China’s Consumer Price Index (CPI) fell 0.7% year-over-year in February, exceeding market expectations of a 0.5% decline and reversing the previous month’s 0.5% increase. This marks the first instance of consumer deflation since January 2024.

However, downside risks for the safe-haven metal appear limited as trade tensions escalate. On Saturday, China announced a 100% tariff on Canadian agricultural goods in retaliation for tariffs imposed by Canada in October, further intensifying the broader trade conflict shaped by Trump’s tariff policies.

Last week, President Trump’s 25% tariffs on Canadian and Mexican imports took effect. However, on Thursday, a one-month exemption was introduced for goods meeting North American trade pact standards, offering some temporary relief.

Additionally, safe-haven demand for Silver could strengthen amid rising concerns over the US economy. San Francisco Fed President Mary Daly stated late Sunday that growing uncertainty among businesses could weigh on economic demand. Daly noted that business leaders in her district are increasingly worried about economic conditions and policy, which research suggests may dampen overall demand.

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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