Silver Price Forecast: XAG/USD falls to near $64.50 due to Fed rate hike odds

Silver declines as traders price in a more hawkish Federal Reserve policy outlook.
Fed Chairman Kevin Warsh stressed that price stability remains the central bank's ultimate guiding principle.
The US and Iran signed an initial agreement, starting 60 days of negotiations for a final peace deal.

Akhtar Faruqui FXStreet

Silver price (XAG/USD) extends its losses for the third successive day, trading around $64.40 per troy ounce during the Asian hours on Friday. Silver prices fall as the traders price in the hawkish sentiment surrounding the Federal Reserve (Fed) policy outlook. Higher borrowing costs increase the opportunity cost of holding non-yielding assets like Silver, reducing their appeal.

In his debut press conference, newly appointed Federal Reserve (Fed) Chairman Kevin Warsh emphasized that "price stability" remains the Fed's ultimate guiding principle. The Federal Open Market Committee (FOMC) voted unanimously on Wednesday to hold its benchmark overnight borrowing rate steady at a range of 3.5%–3.75%. However, the decision carried a hawkish tone, with nearly half of the officials signaling that at least one rate hike could be required later this year.

The hawkish Fed signals outweigh the positive impact of the US-Iran peace agreement, which pushed oil prices lower and eased inflation concerns. The US and Iran signed an initial agreement, kicking off 60 days of negotiations on a final deal to end the war, per CNN.

Additionally, the US military earlier confirmed it had ended its blockade on Iranian ports near the Strait of Hormuz, as officials claim millions of barrels are once again flowing through the vital waterway. Positive developments surrounding the US-Iran peace deal could boost riskier assets, such as the shared currency, in the near term. However, traders remained cautious, expecting it to take months for shipping and energy flows to recover to pre-conflict levels.

(The story was corrected on June 19 at 07.48 GMT to say in the title that XAG/USD falls to near $64.50.)

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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