Silver Price Forecast: XAG/USD rebounds to near $66.00 amid fading US-Iran talks optimism

Silver may face challenges as inflation and interest rate fears are revived by mounting oil supply concerns.
President Trump threatened strikes on Iran if Hezbollah continues attacking Israel, clouding hopes for a US-Iran peace deal.
Hawkish Fed policy expectations could continue to weigh heavily on non-yielding Silver.

Akhtar Faruqui FXStreet

Silver price (XAG/USD) halts its three-day losing streak, trading around $65.90 per troy ounce during the Asian hours on Monday. However, Silver price could further decline amid renewed concerns over a US-Iran peace deal, a development that keeps both inflation risks and the prospect of prolonged high interest rates at the forefront of investor worries.

According to a CNBC report on Sunday, US President Donald Trump threatened direct strikes on Iran if Hezbollah continues its attacks on Israel. This warning has severely clouded the outlook for diplomatic progress between Washington and Tehran.

Furthermore, President Trump threatened to completely dismantle the current peace framework, even as Vice President JD Vance met with Iranian officials for the first round of talks under an interim deal.

Adding to the friction, Tehran simultaneously announced it had once again closed the strategic Strait of Hormuz. While Iranian state media reported that Tehran had completely suspended negotiations in response to Trump's remarks, sources close to the matter indicated that discussions are quietly ongoing.

The non-yielding Silver could face heavy pressure from expectations of tighter monetary policy. The Federal Reserve (Fed) kept interest rates steady last week but adopted a decidedly hawkish tone. Notably, 9 out of 19 Fed policymakers now project at least one interest rate hike this year, with market investors pricing in a potential increase as early as September.

"The resurgent US dollar, powered by the Fed's newly hawkish tone under Kevin Warsh, has stolen the spotlight," noted Tim Waterer, chief market analyst at KCM Trade, highlighting the growing headwinds facing precious metals.

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.

AUD/USD sticks to neutral bias above 0.7100 amid bullish USD undertone

AUD/USD holds steady above 0.7100 during the Asian session on Monday as the US Dollar stalls its modest pullback from the highest level since late July amid persistent geopolitical uncertainties. Adding to this, the Fed's hawkish outlook supports the buck. However, bets on another RBA rate hike underpin the Aussie ahead of Governor Bullock's speech and Australian jobs data on Tuesday and Thursday, respectively.

USD/JPY steadies around 157.00 as BoJ's dovish rate hike undermines JPY

USD/JPY edges up at the start of a new week, stalling its retracement slide from 158.00, or a two-week top touched in reaction to the BoJ's dovish rate hike on Friday. Escalating tensions in the Middle East, along with bets for another Fed rate hike this year, lend some support to the US Dollar and the currency pair. Bulls, however, seem hesitant and await further geopolitical developments.

Gold remains depressed below $4,400 as Fed hike bets and Mideast jitters support USD

Gold struggles to capitalize on its recovery gains registered over the past two days and attracts fresh sellers at the start of a new week. The risk of a broader Middle East conflict helps the safe-haven US Dollar stall Friday's retracement slide from the highest level since late July. Moreover, the Fed's hawkish outlook supports the buck and keeps the non-yielding bullion depressed below $4,400.

The week ahead: Hawkish Fed sets the tone for flash PMIs, SNB decides on policy

The US dollar outperformed all its major peers this week, putting it on the front foot in anticipation of a hawkish Fed before Wednesday, and accelerating its advance after the central bank satisfied the hawkish market bets.

CFTC Report: Positioning turns more defensive as Yen longs build

The week in one sentence: Yen positioning surged into a sizeable net long in the week to September 15, while Oil buying accompanied a sharp price increase. CAD shorts also retreated, but Gold exposure remained crowded despite a lower price. Euro and Australian Dollar positioning weakened alongside softer currencies.

BoJ Recap: Not as hawkish as expected

The Bank of Japan (BoJ) raised its short-term interest-rate target to 1.25% from 1.00% in a 7-2 vote, marking another step in the normalisation of monetary policy and widely matching what everyone has been expecting for weeks.