Silver rises as geopolitical tensions boost demand
- Silver posts solid gains on Friday, trading around $80.20, up 2.28% on the day.
- Tensions between Washington and Tehran underpin safe-haven demand.
- Investors await the release of the advance estimate of the US fourth-quarter GDP.
Silver (XAG/USD) trades around $80.20 on Friday at the time of writing, up 2.28% on the session. The white metal consolidates its recent gains as markets adopt a cautious stance ahead of the advance estimate of fourth-quarter Gross Domestic Product (GDP) in the United States (US), due later in the day.
The consensus points to a slowdown in US growth compared with the previous quarter. Signs of moderating activity could reinforce expectations of monetary easing by the Federal Reserve (Fed). Markets continue to price in the prospect of two rate cuts this year, according to futures market expectations. A lower interest rate environment typically supports Silver, a non-yielding asset, by reducing the opportunity cost of holding it.
In addition, investors are monitoring forward-looking activity indicators, notably the Purchasing Managers Index (PMI) reports published by S&P Global in the United States and other major economies. Weaker-than-expected data could add pressure on the US Dollar and extend support for precious metals.
On the geopolitical front, persistent tensions between the US and Iran continue to sustain demand for safe-haven assets. Recent statements from US officials suggesting the possibility of further actions in the Middle East maintain a climate of uncertainty. In this context, Silver benefits from dual support, linked both to expectations of a more accommodative monetary policy and to demand for protection against geopolitical risks.
Therefore, despite a degree of caution ahead of key macroeconomic releases, the bias remains constructive for XAG/USD as long as rate cut expectations and international tensions continue to bolster the appeal of precious metals.
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
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.
