Silver Price Forecast: XAG/USD faces some selling pressure below $31.50 as US Dollar rebounds

Silver price trades in negative territory around $31.25 in Friday’s early Asian session, down 0.75% on the day.
The rate cut hopes by the Fed and safe-haven flows add sparkle to Silver.
Firmer US Dollar demand and the Fed’s hawkish stance might cap the white metal’s upside.

Lallalit Srijandorn FXStreet

Silver price (XAG/USD) attracts some sellers near $31.25, snapping the three-day winning streak during the early European trading hours on Friday. The white metal trims gains amid the modest rebound of the Greenback. However, the downside might be limited as traders raise their bets on the Federal Reserve (Fed) rate cut in September.

The US Bureau of Labor Statistics (BLS) revealed on Thursday that the US Consumer Price Index (CPI) increased 3.0% YoY in June, compared to a rise of 3.3% in May, This figure was below the market consensus of 3.1%. On a monthly basis, the CPI declined 0.1% MoM in June, the lowest level in more than three years.

Financial markets saw a nearly 85% chance of a Fed rate cut in September, up from the 73% seen before the CPI report, according to CME Group’s FedWatch Tool. The growing hopes for rate cuts from US central bank is due to recently softer US inflation data and weaker Services Purchasing Managers Index (PMI).

Additionally, geopolitical risks and political uncertainty in the US and Europe might boost the safe-haven flows, which benefit the Silver. Also, the concerns about global economic slowdown also lift the white metal as traders find safe destinations to place their funds.

On the other hand, the renewed Greenback demand and the hawkish message from Fed officials might drag the Silver price lower. Fed Chair Jerome Powell emphasized on Wednesday before the US House Financial Services Committee that it would not be appropriate to cut the policy rate until they gain greater confidence in inflation heading sustainably towards the Fed’s 2% target.

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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