Silver Price Forecast: XAG/USD remains below $32.50 despite increased safe-haven demand
- Silver price may rise following Moody’s decision to downgrade the US credit rating by one notch.
- The grey metal has faced downward pressure due to improving global risk sentiment, driven by easing US-China trade tensions.
- A string of weak US economic indicators has reinforced expectations of further Fed rate cuts later this year.
Silver price (XAG/USD) extends its losses for the second successive session, trading around $32.30 per troy ounce during the Asian hours on Monday. While silver prices have recently faced downward pressure, the downside may be limited due to rising demand for safe-haven assets, spurred by growing concerns over the US economic outlook and fiscal stability.
Moody’s has downgraded the US credit rating by one notch—from Aaa to Aa1—citing surging debt levels and an increasing burden from interest payments. This follows similar downgrades by Fitch Ratings in 2023 and Standard & Poor’s in 2011. Moody’s now projects that US federal debt could climb to approximately 134% of GDP by 2035, up from 98% in 2023. The widening federal deficit—expected to reach nearly 9% of GDP—is attributed to rising debt servicing costs, expanding entitlement expenditures, and declining tax revenues.
Silver has also come under pressure amid improving global risk sentiment. The easing of US-China trade tensions, marked by a preliminary agreement to reduce tariffs—Washington lowering duties on Chinese goods from 145% to 30%, and Beijing reducing tariffs on US imports from 125% to 10%—has bolstered investor confidence. Further optimism has been driven by prospects of a US-Iran nuclear deal and upcoming talks between US President Donald Trump and Russian President Vladimir Putin, aimed at de-escalating tensions in Ukraine.
However, Silver—a non-yielding asset—may regain traction as a series of disappointing US economic data points heighten expectations for further interest rate cuts by the Federal Reserve later this year. Notably, the University of Michigan’s Consumer Sentiment Index fell sharply to 50.8 in May, down from 52.2 in April, marking the lowest level since June 2022 and the fifth consecutive monthly decline. Analysts had anticipated an increase to 53.4, highlighting growing pessimism among consumers.
Silver FAQs
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.
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.
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.
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
Akhtar Faruqui
FXStreet
Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.
