Silver Price Forecast: XAG/USD falls below $30.50 due to easing Middle-East tensions

Silver price struggles due to safe-haven amid easing tensions in the Middle East.
Hamas released three female hostages in exchange for 90 Palestinians imprisoned in Israel, in return for the three Israeli hostages freed.
The Silver demand could rise as proposed Trump trade tariffs are expected to drive inflation, potentially triggering trade wars.

Akhtar Faruqui FXStreet

Silver price (XAG/USD) extends its losses for the second successive session, trading around $30.30 per troy ounce during the Asian hours on Monday. The safe-haven metal faces challenges due to easing tensions in the Middle East. On Sunday, Hamas and Israel exchanged hostages and prisoners, marking the first day of a ceasefire after 15 months of conflict.

Hamas released three female hostages in exchange for 90 Palestinians imprisoned in Israel, according to Bloomberg. In turn, for the three Israeli hostages freed, Hamas agreed to release 90 prisoners and detainees, all of whom were expected to be women and children, as reported by the Commission of Prisoners' Affairs.

Traders adopt a cautious approach ahead of President-elect Donald Trump’s inauguration later in the day. His proposed trade tariffs are expected to drive inflation, potentially triggering trade wars and increasing Silver’s appeal as a hedge against inflation.

Concerns are growing over Trump’s policy proposals, such as potential tariffs, tax cuts, and the deportation of undocumented immigrants. Analysts suggest that the US Federal Reserve’s (Fed) future interest rate decisions will largely depend on how these policies are implemented.

Softer-than-expected US inflation data from last week has rekindled expectations of further rate cuts by the Federal Reserve this year. Lower rates reduce the opportunity cost of holding non-interest-bearing Silver, thereby enhancing its appeal.

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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