Silver rallies as US Dollar slips on US-Iran framework, Fed decision looms

Silver rallies nearly 4% and reaches its highest level in several days amid improving market sentiment.
The US Dollar weakens after the announcement of a framework agreement between the US and Iran.
Investors now await the Federal Reserve’s monetary policy decision later this week.

Ghiles Guezout FXStreet

Silver (XAG/USD) trades around $70.70 at the time of writing on Monday, up 3.94% on the day. The white metal is extending its rebound and benefiting from a backdrop marked by a weaker US Dollar (USD) and expectations surrounding the upcoming Federal Reserve (Fed) meeting.

Markets are welcoming news that the United States (US) and Iran have reached a framework agreement designed to bring an end to the war. US President Donald Trump stated that the Strait of Hormuz will be reopened as part of the deal, while Iran’s Deputy Foreign Minister also confirmed the announcement. According to several media reports, the ceasefire that has been in place since April is expected to be extended, allowing both sides to continue negotiations.

The improvement in the geopolitical environment is supporting risk appetite across financial markets. US equity index futures are advancing between 1% and 2%, while Oil prices are falling sharply following expectations that the reopening of the Strait of Hormuz will help normalize global energy flows.

At the same time, the US Dollar (USD) remains under pressure. The US Dollar Index (DXY) is down around 0.25% and trades near 99.55 after opening the week with a bearish gap. The weakness of the Greenback is making Silver more attractive for investors using other currencies, providing additional support to the precious metal.

Market participants are also monitoring several US economic releases due later in the day, including the Fed of New York’s Empire State Manufacturing Survey and Industrial Production data. However, the main focus remains on the Fed’s monetary policy decision later this week, which could provide fresh clues about the future path of interest rates.

Despite the announcement of the agreement between Washington and Tehran, some uncertainty remains. The full text of the deal has not yet been published, and Lebanese media continue to report strikes in southern Lebanon. These lingering geopolitical risks are helping to sustain diversification demand for precious metals, allowing Silver to maintain a positive tone at the start of the week.

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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