Silver Price Forecast: XAG/USD falls on profit-taking but remains buoyed by Fed rate cut bets

Silver price slumps to near $64.95 in Friday’s Asian session, pressured by some profit-taking.
The downtick of Silver might be limited amid expectations of lower US interest rates.
An escalation in US-Venezuela tensions could boost safe-haven assets such as Silver.

Lallalit Srijandorn FXStreet

Silver price (XAG/USD) falls to around $64.95 during the Asian trading hours on Friday. The white metal retreats after hitting a record high in the previous sessions as traders book profits. The potential downside for Silver might be limited amid hopes of further US interest rate cuts following signs of a cooling inflation in the US.

Fresh US economic data on Thursday showed inflation cooled unexpectedly in November. The US Consumer Price Index (CPI) declined to 2.7% YoY in November, according to the US Bureau of Labor Statistics (BLS). This reading came in softer than the 3.1% expected. Meanwhile, US core CPI, which excludes volatile food and energy prices, rose by 2.6%, below the market consensus of 3.0%. This figure marks the slowest pace since 2021.

Softer inflation in November could pave the way for the Federal Reserve (Fed) to cut interest rates to help boost the faltering job market. This, in turn, could boost the Silver price in the near term. Lower interest rates could reduce the opportunity cost of holding Silver, supporting the non-yielding precious metal.

Additionally, a rise in US-Venezuela tensions could boost the safe-haven flows and support the white metal. Venezuela’s government has ordered its navy to escort ships carrying petroleum products from its port, per the New York Times. This action could escalate the risk of a confrontation with the US after Trump ordered a “blockade” aimed at the country’s oil industry.

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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