Silver Price Forecast: XAG/USD rebounds as geopolitical tensions keep markets cautious

Silver rises on Wednesday amid elevated geopolitical uncertainty.
The extension of the ceasefire between the US and Iran continues to dominate market sentiment.
A slight decline in the US Dollar provides additional support to precious metals.

Ghiles Guezout FXStreet

Silver (XAG/USD) advances on Wednesday and trades around $77.70 at the time of writing, up 1.33% on the day. Silver is recovering after recent weakness as investors remain cautious amid persistent geopolitical tensions in the Middle East.

Market sentiment remains largely driven by developments surrounding the conflict between the United States (US) and Iran. US President Donald Trump announced an extension of the ceasefire with Iran just hours before the initial truce was due to expire. The decision was reportedly taken to allow more time for Tehran to present a unified proposal for negotiations.

However, uncertainty remains high as Washington has maintained the naval blockade of Iranian ports despite the ceasefire extension. This fragile situation continues to keep investors attentive to geopolitical headlines, supporting interest in precious metals as alternative assets.

At the same time, Oil prices have rebounded after their earlier correction, highlighting the ongoing supply risks linked to the tensions around the Strait of Hormuz. Higher energy prices can increase global inflation expectations, which may reduce the likelihood of interest rate cuts and typically acts as a headwind for non-yielding assets such as Silver.

On the monetary policy front, Kevin Warsh, a nominee put forward by Donald Trump to lead the Federal Reserve (Fed), reiterated during his testimony before the Senate Banking Committee that he favors fundamental reforms to the central bank’s framework and supports maintaining a smaller balance sheet.

Meanwhile, the US Dollar (USD) edges slightly lower, providing additional support to precious metals. The US Dollar Index (DXY), which measures the Greenback against a basket of six major currencies, trades near 98.40 at the time of writing, helping Silver maintain its upward momentum.

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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