Silver Price Forecast: XAG/USD rises to near $31.00 due to Middle East tensions


  • Silver price appreciates due to concerns over escalation of the Middle East conflict.
  • Israeli forces deepened their offensive operations in northern and central Gaza on Wednesday.
  • Fed Chair Powell stated that first-quarter data did not support increased confidence in the inflation trajectory.

Silver price (XAG/USD) gains ground for the second successive session, trading around $31.00 per troy ounce during the European hours on Wednesday. The upside of the safe-haven Silver is driven by concerns over a potential escalation of the Middle East conflict. Israeli forces continued their offensive in northern and central Gaza on Wednesday, following an airstrike on a tent encampment, according to Reuters.

The militant group Hamas reported that the renewed Israeli campaign killed over 60 Palestinians across the enclave on Tuesday. This could derail efforts to secure a ceasefire in the Gaza war, with talks scheduled to resume in Doha on Wednesday.

Traders anticipate the second semi-annual testimony by Federal Reserve Chairman Jerome Powell and speeches by the Fed’s Michelle Bowman and Austan Goolsbee on Wednesday. Additionally, attention will be on the US Consumer Price Index (CPI) data, set to be released on Thursday. The Core CPI is forecasted to remain steady at 3.45% year-over-year in June. Meanwhile, the monthly Core CPI is also expected to remain consistent at 0.2%.

The price of the non-yielding assets like Silver could face challenges as Fed Chair Jerome Powell reiterated the Fed's cautious stance during the testimony before the US Congress on Tuesday. Powell stated, "First-quarter data did not support the greater confidence in the inflation path that the Fed needs to cut rates."

Powell also emphasized that a "policy rate cut is inappropriate until the Fed gains greater confidence that inflation is headed sustainably toward 2%." The policymaker noted that "First-quarter data did not support the greater confidence in the inflation path that the Fed needs to cut rates."

(This story was corrected on July 11 at 04:30 GMT to say, in the first paragraph, "during the European hours on Wednesday" and not Tuesday".)

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.

 

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