Silver Price Forecast: XAG/USD hits a 13-year high on increased demand for the industrial metal

Silver prices rise to 13-year highs as the white metal tests $36.00.
Demand for Silver as an industrial metal surges despite softer demand for safe havens.
The Gold/Silver ratio plunges, representing a risk-off tone.

Tammy Da Costa, CFTe®FXStreet

Silver (XAG/USD) is experiencing another day of positive gains, which has pushed prices to $36.00, its highest level since February 2012, providing a firm barrier of resistance.

Silver benefits from both its safe-haven appeal during times of economic uncertainty and its unique properties, which make it one of the most sought-after industrial metals.

Both characteristics have underpinned higher Silver prices, which are posting weekly gains of 9% at the time of writing on Friday.

Silver’s industrial appeal shines, lifting prices to 13-year highs

Earlier in the week, Silver prices benefited from escalating US-China trade tensions and a weaker US Dollar, driving demand for precious metals. However, market sentiment shifted on Thursday following a positive call between US President Trump and Chinese President Xi Jinping, which led to a resumption of trade talks between the two nations. The shift in sentiment reduced Silver’s safe-haven appeal but increased its demand as an industrial metal.

In addition to improved geopolitical tone, first-quarter Eurozone Gross Domestic Product (GDP) and Retail Sales data came in stronger than expected, helping to lift confidence in the European economic outlook. Meanwhile, better-than-expected employment figures in the US and Canada further boosted optimism around North American growth prospects.

Meanwhile, the Canadian Prime Minister’s Office (PMO) confirmed that Prime Minister Mark Carney held discussions with Chinese Premier Li Qiang aimed at strengthening bilateral ties and expanding trade cooperation.

With Friday’s developments resulting in lower Gold prices and higher Silver prices, FXStreet data shows the Gold/Silver ratio at 92431, down 1.67% intraday, representing a risk-off tone that is supportive of Silver’s industrial demand.

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

Tammy Da Costa, CFTe®

FXStreet

Tammy is an economist and market analyst with a deep passion for financial markets, particularly commodities and geopolitics.

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