Silver Price Forecast: XAG/USD rises to near $85.00 as Middle East war intensifies

Silver rebounds more than 3% after tumbling over 12% in the prior two sessions.
The precious Silver attracts safe-haven demand as geopolitical conflict in the Middle East escalates.
President Trump warned escalation could bring equally hardline Iranian leadership, highlighting uncertainty over the conflict’s outcome.

Akhtar Faruqui FXStreet

Silver price (XAG/USD) recovers over 3% during the Asian hours on Wednesday, hovering around $85.20 per troy ounce after plunging more than 12% over the previous two sessions. The precious metal draws safe-haven demand as geopolitical conflict in the Middle East intensifies.

According to CNN, US Secretary of State Marco Rubio confirmed that all personnel were safe after a drone struck the grounds of the US consulate in Dubai. The US had earlier shut its embassies in Saudi Arabia, Kuwait, and Lebanon, urging Americans to leave certain countries in the region. Meanwhile, Israeli forces launched a new ground operation in southern Lebanon targeting Hezbollah, alongside increased airstrikes.

Israel reportedly hit a building where Iranian clerics were meeting to choose a new Supreme Leader. US President Donald Trump warned that the escalation could pave the way for an equally hardline leadership in Iran, underscoring uncertainty surrounding the conflict’s outcome.

The BBC reported that Trump said the US Navy would provide insurance support to commercial vessels in the Gulf after Iran effectively disrupted traffic through the Strait of Hormuz. He added that US forces would escort ships if necessary, following reports that Iranian forces had fired on several vessels.

However, gains in dollar-denominated Silver may be capped as the US Dollar (USD) strengthens on concerns that higher energy prices could fuel inflation, leading investors to reassess the policy outlook of the Federal Reserve (Fed). Markets expect the Fed to keep interest rates unchanged until summer.

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

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.

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