Silver Price Forecast: XAG/USD maintains position around $31.00 as traders await US CPI

Silver price holds gains as investors exercise caution ahead of US Consumer Price Index (CPI) data due on Thursday.
Fed Powell's neutral remarks on Wednesday provided support for non-yielding Silver.
Renewed Israeli attacks could hinder efforts to negotiate a ceasefire agreement and bolster the demand for the safe-haven Silver.

Akhtar Faruqui FXStreet

Silver price (XAG/USD) gains ground for the third successive session, trading around $31.00 per troy ounce during the Asian hours on Thursday. This upside could be attributed to investors’ caution ahead of the release of the upcoming US Consumer Price Index (CPI) data for June, scheduled for release on Thursday, for more clarity on the Federal Reserve's (Fed) monetary policy direction. The higher interest rates negatively impact the demand for non-yielding assets like Silver.

Market forecasts generally predict that the annualized US core CPI for the year ending in June will remain steady at 3.4%. Meanwhile, headline CPI inflation is expected to increase to 0.1% month-over-month in June, compared to the previous flat reading of 0.0%.

Meanwhile, on Wednesday, Federal Reserve (Fed) Chairman Jerome Powell underscored the importance of closely monitoring the labor market, highlighting its significant deterioration. Additionally, Powell expressed confidence in the downward trend of inflation, following his remarks on Tuesday that emphasized the necessity of further data to strengthen confidence in the inflation outlook.

Additionally, Fed Chair Powell emphasized on Tuesday that a "policy rate cut is inappropriate until the Fed gains greater confidence that inflation is headed sustainably toward 2%." He also noted that "first-quarter data did not support the greater confidence in the inflation path that the Fed needs to cut rates."

On the geopolitical front, Israeli forces carried out an offensive in northern and central Gaza on Tuesday, which included an airstrike on a tent encampment, as reported by Reuters. Palestinian officials reported that at least 29 people, mostly women and children, were killed in the strike. The incident occurred as spectators gathered at a school grounds in Abassan, east of Khan Younis, where vendors were selling smoothies and biscuits.

This development has raised concerns about a possible escalation in the Middle East conflict and bolstered the appeal of safe-haven assets like Silver. Hamas, the militant group, warned that renewed Israeli attacks could disrupt efforts to negotiate a ceasefire in the Gaza conflict, with discussions slated to resume in Doha on Wednesday.

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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