Silver Price Forecast: XAG/USD drops below $83.00 as inflation fears and strong USD dampen demand

Silver price attracts some sellers to around $82.80 in Monday’s early European session, down 1.28% on the day.
Oil surges stoke fears of faster inflation, weighing on the Silver price.
The US Nonfarm Payrolls (NFP) declined by 92,000 in February, which was weaker than expected.

Lallalit Srijandorn FXStreet

Silver price (XAG/USD) tumbles to near $82.80 during the early European session on Monday. A strengthening US Dollar (USD) and fading expectations for Federal Reserve (Fed) rate cuts exert some selling pressure on the white metal.

The precious metals face some profit-taking after a strong rally as traders rush to hold cash during market turbulence. Additionally, supply disruptions in the Strait of Hormuz fuel inflation fears and further complicate the interest rate outlook.

Markets currently see nearly a 95% probability that US rates will remain unchanged at the March meeting, according to the CME FedWatch tool. This, in turn, provides some support to the Greenback. A stronger USD typically pressures precious metals because it raises the cost of bullion for investors holding other currencies.

However, the worse-than-expected US economic data could drag the USD lower and underpin the USD-denominated commodity price. The US Nonfarm Payrolls (NFP) declined by 92,000 in February, compared to 126,000 (revised from 130,000) increase recorded in January, the US Bureau of Labor Statistics (BLS) showed on Friday. This figure came in weaker than the market expectation for an increase of 59,000 by a wide margin. Meanwhile, the Unemployment Rate rose to 4.4% in February from 4.3% in January.

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

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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