Silver Price Forecast: XAG/USD recovers as the US Dollar eases

Silver rises on Friday, climbing back above $58.50 as the US Dollar edges lower.
Concerns over a fresh inflationary shock driven by higher Oil prices continue to support expectations of a more restrictive monetary policy.
Escalating Middle East tensions sustain demand for the US Dollar and cap the upside for precious metals.

Ghiles Guezout FXStreet

Silver (XAG/USD) trades around $58.55 at the time of writing on Friday, up 2.24% on the day, benefiting from a modest pullback in the US Dollar (USD) following its recent rally. The white metal is attempting to recover after Thursday's sharp correction, although it remains exposed to a macroeconomic backdrop that continues to weigh on non-yielding assets.

The US Dollar edges slightly lower, providing temporary support for precious metals. However, the move remains limited as US Treasury yields stay close to their recent highs, with investors continuing to price in the risk of more persistent inflation.

Higher Oil prices remain at the centre of market concerns. Attacks on vessels in the Red Sea and the escalation of the Middle East conflict are fueling fears of prolonged disruptions to global energy supplies. This backdrop reinforces expectations that the Federal Reserve (Fed) may have to keep interest rates higher for longer, or even consider another rate hike if inflationary pressures continue to build.

According to the CME FedWatch Tool, markets continue to price in a meaningful chance of further monetary tightening in the coming months, supporting the US Dollar and limiting the appeal of non-yielding assets such as Silver.

Meanwhile, geopolitical tensions continue to intensify. US military strikes against Iran are ongoing, while media reports suggest that US President Donald Trump is considering a large-scale military operation against Tehran. This environment of heightened uncertainty continues to support safe-haven flows, although the US Dollar is benefiting more than precious metals, helping explain Silver's limited recovery despite the Greenback's pullback.

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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