Silver Price Forecast: XAG/USD holds position above $30.50 ahead of US NFP

Silver price receives support as weaker US data raise the odds of the Fed reducing rates in 2024.
US Nonfarm Payrolls are expected to increase by 190,000 new jobs, down from the previous reading of 272,000.
The potential for improvement in negotiations between Israel and Hamas may cap the upside for safe-haven Silver.

Akhtar Faruqui FXStreet

Silver price (XAG/USD) recovers its recent losses, trading around $30.60 per troy ounce during the European session on Friday. Weaker economic data from the United States (US) has sparked speculation that the Federal Reserve (Fed) might consider reducing interest rates in 2024. This has provided support for non-yielding assets such as silver.

Additionally, The Federal Reserve (Fed) Chair Jerome Powell turned slightly dovish on Tuesday. Powell said that the Fed is getting back on the disinflationary path. However, Powell wants to see further evidence before cutting interest rates as the US economy and the labor market remain strong, per Reuters.

On Wednesday, the US ISM Services PMI dropped sharply to 48.8 in June, marking the steepest decline since April 2020. Additionally, the ADP Employment report showed that US private businesses added 150,000 workers to their payrolls in June, the lowest increase in five months.

Traders await the US employment reports on Friday, which are expected to indicate a slowdown in employment growth for June. The US Nonfarm Payrolls (NFP) are forecasted to show an increase of 190,000 new jobs, down from the previous reading of 272,000. Additionally, US Average Hourly Earnings are anticipated to moderate slightly, with projections showing a decrease to 3.9% year-over-year from the prior reading of 4.1%.

On the geopolitical front, Israeli Prime Minister Benjamin Netanyahu informed US President Joe Biden on Thursday that he has decided to send a delegation to resume stalled negotiations on a hostage release deal with Hamas. A source within the Israeli negotiating team said that there is a real chance of reaching an agreement after Hamas made a revised proposal regarding the terms of the deal, as reported by Reuters. This may limit the upside of safe-haven assets like Silver.

Silver prices are being supported by increased demand for the metal in the expansion of renewable energy. Silver is a key component in solar panels and other renewable energy technologies due to its conductivity in photovoltaic cells.

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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