Silver Price Forecast: XAG/USD jumps on weaker Dollar, revived Fed rate‑cut bets

Silver jumps sharply on Friday, rising more than 5% as the US Dollar weakens.
The reopening of the Strait of Hormuz pushes Oil prices sharply lower, easing inflation concerns.
Markets revive expectations of Federal Reserve rate cuts as energy prices cool.

Ghiles Guezout FXStreet

Silver (XAG/USD) surges on Friday, trading around $82.60 at the time of writing, up 5.40% on the day as the US Dollar (USD) weakens and markets reassess the outlook for United States (US) monetary policy.

The rally in the precious metal comes as geopolitical tensions in the Middle East show signs of easing. Iran’s Foreign Minister Abbas Araghchi announced that the Strait of Hormuz has been declared completely open for commercial vessels during the current ceasefire period. The announcement marks a significant de-escalation after weeks of tensions around one of the world’s most strategic shipping routes.

Following the news, Oil prices dropped sharply as supply disruption fears faded. West Texas Intermediate (WTI) fell to around $80 per barrel, marking one of its steepest daily declines in recent weeks. The reopening of the strait is expected to restore more stable flows of Crude shipments through the Gulf, removing part of the geopolitical risk premium embedded in energy prices.

The decline in Oil prices is easing immediate inflation concerns and prompting investors to reassess the trajectory of the US monetary policy. Lower energy prices reduce pressure on consumer prices and increase the likelihood that the Federal Reserve (Fed) could deliver interest rate cuts later this year.

Markets are now pricing 38.2% chance of a 25-basis-point rate cut by year-end, up from 25.9% the previous day, according to the CME Fedwatch tool. Lower interest rates tend to support non-yielding assets such as precious metals, as they reduce the opportunity cost of holding them.

At the same time, the US Dollar remains under pressure. The US Dollar Index (DXY), which measures the Greenback against a basket of six major currencies, is trading near multi-week lows around 97.80. The softer USD is making Silver more attractive for international investors and reinforcing the metal’s upward momentum.

Despite improving global risk sentiment following the diplomatic developments, the weakening US Dollar and renewed expectations of monetary easing are providing strong support for precious metals. Investors will now closely monitor developments around potential US-Iran negotiations over the weekend, as well as upcoming comments from Fed officials ahead of the blackout period preceding the next Federal Open Market Committee (FOMC) meeting.

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

Ghiles Guezout

FXStreet

Ghiles Guezout is a Market Analyst with a strong background in stock market investments, trading, and cryptocurrencies. He combines fundamental and technical analysis skills to identify market opportunities.

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