Silver Price Forecast: XAG/USD rises toward $39.00 due to increased safe-haven demand

Silver price appreciates as safe-haven demand increases amid rising concerns over Fed independence.
President Trump announced the removal of Fed Governor Lisa Cook over allegations of mortgage fraud.
Fed Cook’s removal could heighten the likelihood of earlier interest rate cuts amid Trump’s pressure to lower borrowing costs.

Akhtar Faruqui FXStreet

Silver price (XAG/USD) recovers its recent losses from the previous session, trading around $38.80 per troy ounce during the Asian hours on Tuesday. The price of Silver gains ground amid increased safe-haven demand, driven by the rising concerns over Federal Reserve (Fed) independence after the US President Donald Trump announced to remove Fed Governor Lisa Cook over alleged mortgage fraud.

President Trump posted a letter on social media early Tuesday, saying that he was removing Fed Governor Cook from her position on the Fed's board of directors. Cook’s dismissal may increase the chances of earlier interest rate cuts, given Trump’s ongoing pressure on the central bank to reduce borrowing costs. However, Cook said that she will not resign as there is no cause exists for her to be fired. I will continue to carry out duties, she added.

Additionally, Trump warned he could impose a 200% tariff on Chinese goods if Beijing refuses to supply magnets to the United States (US), Reuters reported. Moreover, a Bloomberg report says that Trump threatened "subsequent additional tariffs" and export restrictions on advanced technology and semiconductors in retaliation for digital services taxes that hit American technology companies.

Fed Chair Jerome Powell said at the Jackson Hole symposium on Friday that risks to the job market were rising, but also noted inflation remained a threat and that a decision wasn't set in stone. Traders will likely await the upcoming release of the Q2 US Gross Domestic Product Annualized and July Personal Consumption Expenditures Price Index data, the Fed's preferred inflation gauge.

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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