Silver price rallies to three-week highs as Oil slump, softer Dollar lift XAG/USD

Silver jumps more than 4% on Thursday and reaches its highest level in the last three weeks, above $80.60.
The decline in Oil prices eases inflation fears and supports precious metals through lower US yields.
A weaker US Dollar and improving risk sentiment reinforce bullish momentum in XAG/USD.

Ghiles Guezout FXStreet

Silver (XAG/USD) extends its strong rally on Thursday, trading around $80.60 at the time of writing, up 4.19% on the day. XAG/USD is reaching three-week highs, supported by lower Oil prices, declining US Treasury yields and broad weakness in the US Dollar (USD).

Markets continue to react to progress surrounding a possible deal between the United States (US) and Iran, which is boosting risk appetite and triggering a sharp correction in Oil prices. This easing in the energy market is reducing inflation expectations and prompting investors to reassess the outlook for Federal Reserve (Fed) monetary policy.

The decline in Crude Oil prices is also pushing US Treasury yields lower, a supportive factor for non-yielding precious metals. Against this backdrop, traders are once again increasing bets on potential Fed rate cuts before the end of the year.

At the same time, the US Dollar remains under pressure following its recent decline, making Silver more attractive for investors using other currencies. The weakness in the Greenback comes as markets continue to monitor geopolitical negotiations in the Middle East alongside upcoming US macroeconomic data releases.

Recent US labor market data showed mixed signals. The ADP Employment Change report released on Wednesday showed private payrolls increased by 109K in April, above market expectations. On Thursday, Initial Jobless Claims rose to 200K in the week ending May 2, compared with a revised 190K previously.

Investors are now awaiting Friday’s Nonfarm Payrolls (NFP) report for further clues on the Fed’s monetary policy path.

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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