Silver weakens as easing geopolitical tensions weigh on safe-haven demand
- Silver declines by 1.45% on Tuesday and trades around $57.55 at the time of writing.
- Hopes for US-Iran negotiations are reinforcing expectations of easing inflationary pressures.
- Investors are awaiting the Federal Reserve's monetary policy decision later this week.
Silver (XAG/USD) trades around $57.55 on Tuesday at the time of writing, down 1.45% on the day, as investors remain cautious ahead of the Federal Reserve's (Fed) monetary policy decision. A rebound in the US Dollar (USD) is also limiting demand for the white metal, despite an uncertain geopolitical backdrop.
Markets continue to assess the latest developments in the Middle East. US President Donald Trump said that the United States (US) is holding "good talks" with Iran in an effort to resolve the regional conflict. The prospect of de-escalation is weighing on Oil prices, easing concerns about renewed inflationary pressures and reducing expectations of a near-term interest rate hike.
However, Donald Trump also warned that US military strikes could resume if negotiations fail. Meanwhile, several security incidents reported in Saudi Arabia, Jordan and Iraq highlight that tensions remain elevated, while disruptions to shipping through the Strait of Hormuz continue to pose risks to global energy markets.
Investors are now turning their attention to this week's Federal Reserve (Fed) meeting. Markets widely expect policymakers to leave interest rates unchanged, although a minority of market participants still see a possibility of an immediate rate hike. The prevailing scenario remains that any potential rate increase would be postponed until September, while the central bank's guidance will be closely watched for fresh clues on the future path of monetary policy.
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.
