Silver price remains under pressure as Fed decision, US-Iran truce shape outlook

Silver remains under pressure on Wednesday as investors await the Federal Reserve’s monetary policy decision.
The interim US-Iran peace agreement reduces concerns about energy prices and global inflation.
Markets are watching economic projections and comments from the central bank chief for clues on the future path of interest rates.

Ghiles Guezout FXStreet

Silver (XAG/USD) trades around $69.85 on Wednesday at the time of writing, down 0.25% on the day. Traders remain cautious ahead of the Federal Reserve’s (Fed) policy decision later in the day, which could provide fresh guidance on the outlook for US interest rates.

The white metal continues to benefit from a relatively supportive macroeconomic environment. The announcement of a framework peace agreement between the United States (US) and Iran has helped reduce the risk of disruptions to global energy supplies. This development has fueled expectations of easing energy-driven inflation pressures, a factor that has supported demand for precious metals in recent days.

Under the preliminary terms of the agreement, the two countries have agreed to a 60-day ceasefire and the reopening of the Strait of Hormuz, a strategic route for global Oil trade. Further discussions are expected regarding Iran’s nuclear program, while several aspects of the agreement remain subject to differing interpretations between Washington and Tehran.

Market attention is now turning to the Fed. The US central bank is widely expected to leave its benchmark interest rate unchanged within the 3.5%-3.75% range, but investors will focus primarily on whether policymakers revise their interest rate and inflation projections. The updated economic forecasts and the so-called dot plot will be closely scrutinized.

Investors will also analyze comments from Fed Chair Kevin Warsh to assess whether the central bank maintains a hawkish stance amid still-persistent inflation. Markets continue to price in the possibility of a 25-basis-point rate hike before year-end, limiting the upside potential for non-yielding assets such as Silver.

The recent performance of the US Dollar (USD) also remains an important factor for the precious metal. Optimism surrounding the US-Iran agreement has weighed on the Greenback in recent days, providing indirect support to Dollar-denominated metals. However, investors prefer to wait for the outcome of the Fed meeting before taking more aggressive directional positions on Silver.

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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