Silver Price Forecast: XAG/USD rises above $36.30 amid heightened Middle East geopolitical tensions

Silver price gains traction to near $36.30 in Thursday’s early Asian session.
Cooler-than-expected CPI boosts Fed rate cut expectations.
Rising geopolitical risks could support the Silver price in the near term.

Lallalit Srijandorn FXStreet

The Silver price (XAG/USD) attracts some buyers to around $36.30, snapping the two-day losing streak during the Asian trading hours on Thursday. The weaker US Dollar (USD) and escalating geopolitical tensions in the Middle East provide some support to the white metal. Traders will keep an eye on the US Producer Price Index (PPI) and weekly Initial Jobless Claims, which will be released later on Thursday.

Softer-than-expected US inflation in May has prompted traders to raise their bets on a Federal Reserve (Fed) rate cut. This, in turn, drags the Greenback lower and lifts the USD-denominated commodity price. The CME FedWatch tool showed the markets have priced in nearly a 68% possibility that the US central bank would cut rates by 25 basis points (bps) by September, compared with 57% before the US CPI data. They now also see a still small but rising chance of an earlier rate cut, putting about an 18% odds of that happening in July versus about 13% earlier on Wednesday.

Reuters reported on Wednesday that the United States (US) is planning a partial evacuation of its Iraqi embassy and will allow military dependents to depart places around the Middle East, citing security risks in the region. Geopolitical risks could underpin the Silver price as investors seek more holdings in safe-haven assets.

On the other hand, White House envoy Steve Witkoff is scheduled to meet Iranian Foreign Minister Abbas Araghchi in Muscat on Sunday and discuss the Iranian response to the recent US proposal, per Axios. Any positive developments surrounding a deal over the nuclear program between the US and Iran might cap the upside for the 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

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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