Silver Price Forecast: XAG/USD rises on USD weakness, geopolitical tensions

Silver rallies on Tuesday, trading around $89.55 as the US Dollar and Treasury yields retreat.
A sharp drop in Oil prices eases inflation concerns and keeps Federal Reserve rate-cut expectations in focus.
Ongoing geopolitical tensions linked to the US-Iran war sustain demand for safe-haven assets.

Ghiles Guezout FXStreet

Silver (XAG/USD) trades on a firm footing on Tuesday, hovering around $89.55 at the time of writing, up 2.90% on the day. The white metal benefits from a more supportive backdrop for non-yielding assets as the US Dollar (USD) weakens and US Treasury yields move lower, boosting demand for precious metals.

The pullback in the Greenback comes as markets continue to price in potential monetary easing from the Federal Reserve (Fed) in the second half of the year. According to the CME FedWatch tool, investors currently see a 43.4% chance that the Fed could deliver its first interest rate cut of the year in July, while the odds of a move as early as June stand near 37%. Lower interest rates tend to support non-yielding assets such as Silver.

At the same time, a sharp decline in Oil prices is helping to ease inflation concerns. The G7 confirmed its readiness to take “necessary measures” to support global energy supplies, according to Japan’s Industry Minister Ryosei Akazawa, quoted by Reuters on Tuesday. These developments reinforce the view that price pressures could moderate in the coming months. This also strengthens expectations of monetary easing, providing additional support for precious metals.

On the geopolitical front, market sentiment remains cautious as the conflict between the United States (US) and Iran enters its eleventh day. Airstrikes continue to be reported across the Middle East, while tensions around the Strait of Hormuz remain elevated. This uncertain backdrop continues to support safe-haven demand for assets such as Silver.

Looking ahead, investors are focusing on upcoming US macroeconomic releases, particularly the Consumer Price Index (CPI) due on Wednesday and the Personal Consumption Expenditures (PCE) Price Index scheduled for Friday, both key indicators for the Fed’s monetary policy outlook.

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.

(This story was corrected on March 10 at 17:25 GMT to say that Japan’s Industry Minister's name is Ryosei Akazawa, not Yoji Muto Akazawa.)

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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