Silver Price Forecast: XAG/USD holds losses below $77.00 due to renewed US-Iran tensions

Silver declines as renewed US-Iran friction stokes inflation fears, backing expectations for prolonged tight monetary policy.
The US confirmed self-defense strikes in southern Iran, while Iran claimed it targeted a US F-35 jet and several drones.
Traders assess the Fed's outlook as May's consumer confidence dipped on Iran-conflict-driven inflation fears.

Akhtar Faruqui FXStreet

Silver price (XAG/USD) remains subdued for the second successive day, trading around $76.90 per troy ounce during the Asian hours on Wednesday. The non-interest-bearing white metal holds losses due to renewed tensions and ongoing uncertainty around the strategic Strait of Hormuz. However, traders track potential progress toward a US-Iran peace agreement.

The diplomatic friction comes amid fresh military clashes in the region, which increases fears of an energy-driven inflation shock, strengthening expectations that central banks could keep monetary policy tighter for longer.

The US military confirmed it launched self-defense strikes in southern Iran, while Iran’s Revolutionary Guard claimed it targeted an American F-35 fighter jet and several drones that had allegedly violated Iranian airspace.

Iran's foreign ministry has condemned recent US airstrikes in the southern Hormozgan province, labeling them a "gross violation" of a tenuous, seven-week-old ceasefire. The statement followed reports from Iranian media of explosions echoing through the region early Tuesday morning.

Traders assess the Federal Reserve's monetary outlook, which heavily influences the price of non-yielding Silver. The US Consumer Confidence Index dipped 0.7 points to 93.1 in May, down from an upwardly revised 93.8 in April. The decline was fueled by intensifying inflation worries linked to the conflict in Iran. While households expressed widespread pessimism regarding the current labor market, they did anticipate conditions to improve by the end of the year.

Meanwhile, markets are closely monitoring upcoming remarks from Fed policymakers, including Vice Chair Philip Jefferson and Governor Lisa Cook, to gauge how persistent inflation will impact future monetary policy. Traders also await Thursday's release of the April US Personal Consumption Expenditures (PCE) data for further 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.

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