Silver Price Forecast: XAG/USD moves above $32.50 due to caution ahead of US election

Silver price appreciates as the US Dollar loses ground amid lower Treasury yields.
The recent poll indicated that Kamala Harris and Donald Trump are locked in a close contest across seven battleground states.
Silver demand may increase as China approves an additional stimulus package of more than 10 trillion yuan.

Akhtar Faruqui FXStreet

Silver price (XAG/USD) breaks its three-day losing session, trading around $32.70 during the European hours on Monday. The upside of the Silver prices could be attributed to the subdued US Dollar (USD) amid lower Treasury yields. A weaker dollar generally boosts demand for dollar-denominated commodities like silver, making them more attractive to buyers using other currencies.

The US Dollar Index (DXY), which measures the value of the US Dollar against its six major peers, trading around 103.80 with 2-year and 10-year yields on US Treasury bonds standing at 4.17% and 4.31%, respectively, at the time of writing.

Silver prices may hold ground as traders are also preparing for upcoming monetary policy decision from the US Federal Reserve (Fed) scheduled to be released later this week. The CME FedWatch Tool currently shows a 99.7% probability of a quarter-point rate reduction by the Fed in November.

Regarding US presidential election, traders adopt caution due to growing uncertainty surrounding the election results on Tuesday. The latest poll shows Vice President Kamala Harris with slight leads in Nevada, North Carolina, and Wisconsin, while former President Donald Trump holds a narrow edge in Arizona. The candidates are in close contests in Michigan, Georgia, and Pennsylvania. Conducted from October 24 to November 2, the final New York Times/Siena College poll indicated that all matchups in seven battleground states fall within a 3.5% margin of error.

The Standing Committee of the National People's Congress in China is meeting from November 4 to 8, where it is expected to approve additional debt and fiscal measures as part of a broader growth stimulus plan. Media reports suggest that the potential stimulus package could exceed 10 trillion yuan. As one of the world’s largest manufacturing hubs for electronics, solar panels, and automotive components, China may have increased demand for Silver.

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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