Silver Price Forecast: XAG/USD falls to near $75.00 as US-Iran optimism fades

Silver faces downward pressure as Strait of Hormuz tensions spark fears of an energy-driven inflation shock.
US-Iran peace optimism faded after US airstrikes and Iranian claims of targeting an American F-35 and several drones.
Silver traders analyze the Fed's outlook as a declining US Consumer Confidence Index dampens market sentiment.

Akhtar Faruqui FXStreet

Silver price (XAG/USD) extends its losses for the second successive day, trading around $75.10 per troy ounce during the early European hours on Wednesday. The non-yielding asset faces persistent downward pressure as renewed uncertainty over the status of the Strait of Hormuz sparked fresh fears of an energy-driven inflation shock. Consequently, these supply-side anxieties have bolstered expectations that central banks will maintain a hawkish stance and keep interest rates higher for longer.

Optimism for a US-Iran peace deal rapidly eroded following US military "self-defense" airstrikes in southern Iran. In response, Iran’s Revolutionary Guard claimed to have targeted an American F-35 fighter jet and several drones for allegedly violating Iranian airspace. Iran's foreign ministry strongly condemned the strikes in the southern Hormozgan province, branding them a "gross violation" of a fragile, seven-week-old ceasefire. The diplomatic fallout follows state media reports of heavy explosions echoing through the region early Tuesday morning.

Silver traders are closely analyzing the Federal Reserve's (Fed) monetary outlook, a key driver for the non-interest-bearing Silver. Market sentiment was recently hit by the US Consumer Confidence Index, which edged down 0.7 points to 93.1 in May from an upwardly revised 93.8 in April. This dip was largely driven by escalating inflation anxieties tied to the ongoing conflict in Iran. While households expressed near-term pessimism regarding the current labor market, they remain optimistic that conditions will improve by year-end.

Moving forward, the market is highly focused on upcoming commentary from Fed Vice Chair Philip Jefferson and Governor Lisa Cook for clues on how sticky inflation might shape interest rates. Additionally, traders are awaiting Thursday's release of the April US Personal Consumption Expenditures (PCE) data for definitive policy cues.

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.

AUD/USD bulls regain control above 0.6950 amid USD retreat

AUD/USD regains traction and extends the previous day's bounce from the weekly low, aiming for 0.7000 in Asia on Friday. The overnight pullback in US bond yields keeps the US Dollar below an 18-month high, which in turn offers some support to the pair. Meanwhile, hawkish RBA expectations also keep the major underpinned.

USD/JPY holds gains near 158.00 after Japan's weak Household Spending data

USD/JPY clings to gains around 158.00 after data showed on Friday that Japan's Household Spending fell for the ninth straight month, undermining the Japanese Yen. Meanwhile, the US Dollar remains depressed as the overnight fall in US bond yields counters a hawkish Fed and geopolitical uncertainties, could cap any downside in the pair.

Gold remains range-bound below $4,200

Gold has given up some ground after an initial bullish attempt to reach weekly highs, returning to below the $4,200 mark per troy ounce on Friday. The US Dollar’s strong upside momentum, combined with rising US Treasury yields across the curve, seems to keep further gains in the yellow metal under scrutiny.

Has Bitcoin really escaped the macro forces it was built to fight?

Over 17 years ago, Satoshi Nakamoto designed Bitcoin (BTC) on the back of a global financial crisis as an alternative to the global monetary system outside the control of central banks, governments and traditional intermediaries. This raises a key question: has Bitcoin really become independent of the macroeconomic forces it was built to challenge?

The Euro is not the sick man of Europe. France's bond market is

EUR/USD remains under pressure, near the 17-month low of 1.1161 reached on Monday. The pair has lost more than 7% since its yearly peak, as concerns over France's public finances increasingly weigh on the single currency. But behind the weakness of the Euro (EUR), the problem does not necessarily lie with the European economy as a whole.