Silver price rallies on US-Iran de-escalation hopes, softer inflation outlook

Silver price rallies sharply on Tuesday, supported by optimism over a possible de-escalation between the United States and Iran.
Investors expect that easing geopolitical tensions could push energy prices lower and moderate global inflation pressures.
Softer inflation expectations could encourage central banks to adopt a less restrictive monetary stance.

Ghiles Guezout FXStreet

Silver (XAG/USD) surges on Tuesday and trades around $73.70 at the time of writing, up 5.14% on the day. The precious metal is benefiting from a weaker US Dollar (USD) and renewed optimism in markets after reports indicated that US President Donald Trump is willing to end the military campaign against Iran even if the Strait of Hormuz remains largely closed.

According to a Wall Street Journal report, Donald Trump told aides he is open to pursuing a diplomatic resolution with Iran. The report added that US administration officials believe that forcibly reopening the Strait of Hormuz would require extending the military operation well beyond the initially estimated four-to-six-week timeline.

In theory, easing geopolitical tensions usually reduces demand for safe-haven assets such as Silver. However, the white metal is outperforming as markets expect that a Middle East truce could lead to lower Oil prices, helping to ease global inflation expectations.

In recent weeks, the surge in energy prices caused by supply disruptions linked to Middle East tensions has fueled concerns about persistently high inflation. Such a scenario generally encourages central banks to keep monetary conditions restrictive, which tends to reduce the appeal of non-yielding assets such as Silver.

If regional tensions continue to ease and Oil prices decline, investors could start revising down their expectations for restrictive monetary policies. This outlook is currently supporting demand for Silver, which benefits both from its safe-haven status and its sensitivity to inflation and interest rate expectations.

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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