Silver Price Forecast: XAG/USD maintains position above $36.00 near multi-year highs

Silver price maintains its position near the highest level since February 2012.
The safe-haven demand For Silver increases as soft US economic data fuels the Fed rate cut odds.
US NFP could have added 130,000 jobs in May, while the Unemployment Rate is expected to hold steady at 4.2%.

Akhtar Faruqui FXStreet

Silver price (XAG/USD) remains stronger for the second successive session, maintaining its position near the highest level since February 2012. The price of the grey metal is trading around $36.00 per troy ounce during the Asian hours on Friday.

The prices of precious metals, including Silver, surge as safe-haven demand increases amid soft economic data from the United States (US), fueling the Federal Reserve’s (Fed) rate cut expectations. Thursday’s Weekly Initial Jobless Claims rose to 247,000, above the expected 235,000.

On Wednesday, US ADP private sector employment rose 37,000 in May, far below the market expectation of 115,000. ISM Services Purchasing Managers Index (PMI) declined to 49.9 in May, from 51.6 in April. This reading surprisingly came in weaker than the expected 52.0.

Moreover, traders adopt caution ahead of the upcoming US Nonfarm Payrolls, which is expected to have added 130,000 jobs in May, below the 177,000 increase in April. Moreover, the Unemployment Rate is also expected to hold steady at 4.2%.

However, the upside of the safe-haven Silver could be restrained as market sentiment improved following a productive call between US President Donald Trump and Chinese President Xi Jinping. Trump expressed that the call was productive and prepared to continue tariff negotiations.

Traders would likely observe Monday’s slew of data from China, including consumer, producer prices, and trade data. Given China's status as one of the world's largest manufacturing hubs, the country's industrial demand for Silver is significant.

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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