Silver Price Forecast: XAG/USD surges as Middle East hostilities boost safe-haven demand

Silver surges more than 4% on Tuesday, trading around $58.85 at the time of writing.
Rising Oil prices reflect persistent geopolitical tensions in the Middle East.
Investors remain focused on next week's Fed policy decision and the outlook for US interest rates.

Ghiles Guezout FXStreet

Silver (XAG/USD) rallies to around $58.85 on Tuesday at the time of writing, up 4.31% on the day. The white metal is supported by strong safe-haven demand as investors continue to monitor escalating tensions between the United States (US) and Iran.

West Texas Intermediate (WTI) Oil trades higher after resuming its advance as markets remain concerned about the impact of the conflict on global energy supplies. Although diplomatic efforts are still underway, with Tehran reportedly receiving a proposal through mediators for a 10-day cessation of strikes to revive negotiations, investors remain cautious as military exchanges between the two countries continue.

Typically, rising Oil prices increase inflation expectations, reinforcing the prospect of higher interest rates for longer and weighing on non-yielding assets such as Silver. However, the precious metal is currently defying that traditional relationship, with safe-haven demand proving strong enough to offset the headwind created by higher energy prices.

Analysts at ING noted that the foreign exchange market is increasingly reflecting developments in the Gulf, highlighting that geopolitical tensions continue to support demand for defensive assets. The bank added that the US Dollar (USD) has also benefited from the deteriorating security backdrop, although safe-haven flows remain broad enough to support precious metals as well.

On the monetary policy front, markets widely expect the Federal Reserve (Fed) to leave interest rates unchanged at next week's meeting. Investors will closely monitor the updated economic projections and comments from Fed Chair Kevin Warsh for fresh guidance on the timing of any future policy adjustments.

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

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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