Silver Price Forecast: XAG/USD rises to near $29.50 due to lower opportunity cost
- Silver price gains ground as rising odds of a Fed rate cut reduce the opportunity cost of holding bullion assets.
- Atlanta Fed President Raphael Bostic suggested that it might be "time to move" on implementing rate cuts.
- Israel's military and the Palestinian militant group Hamas have agreed to three-day pauses in fighting.
Silver price (XAG/USD) extends its gains for the second successive day, trading around $29.50 per troy ounce during the Asian hours on Friday. Non-yielding Silver is benefiting from a lower opportunity cost as expectations grow for a US Federal Reserve interest rate cut in September.
Investors await July’s US Personal Consumption Expenditure (PCE) Price Index scheduled to be released later in the North American Session, seeking clues about the future direction of US interest rates.
Federal Reserve Atlanta President Raphael Bostic, a prominent hawk on the FOMC, indicated on Thursday that it might be "time to move" on rate cuts due to further cooling inflation and a higher-than-expected unemployment rate. However, he wants to wait for confirmation from the upcoming monthly jobs report and two inflation reports before the Fed's September meeting.
On the geopolitical front, safe-haven bullion may encounter a challenge as Israel's military and the Palestinian militant group Hamas have agreed to three-day pauses in fighting in Gaza. These pauses are intended to allow the first round of vaccinations for 640,000 children against polio, according to a senior WHO official, as reported by Reuters on Thursday.
In other news reported by Reuters, Israeli troops killed a local commander of the Iranian-backed Islamic Jihad movement and four other militants in the West Bank on Thursday. The incident occurred during one of the largest assaults in the Israeli-occupied territory in months, marking a significant escalation in the ongoing conflict.
Silver FAQs
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.
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.
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.
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.
