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Silver (XAG/USD) struggles near the lower end of one-week-old range, holds above $68.00

  • Silver kicks off the new week on a negative note and seems vulnerable to depreciate further.
  • Escalating Middle East conflicts benefit the safe-haven USD and weigh on the white metal.
  • Inflation concerns fuel hawkish central banks' expectations and also undermine the XAG/USD.

Silver (XAG/USD) attracts fresh sellers during the Asian session on Monday and slides to the lower end of a familiar trading range held over the past week or so. The white metal is currently placed above the $68.00 mark, down nearly 2.0% for the day, and seems vulnerable to slide further.

As the US-Iran conflict entered its fifth week, rising military activity kept investors on edge and benefited the US Dollar's (USD) status as the global reserve currency, undermining USD-denominated commodities, including the XAG/USD. In the latest development, the Washington Post reported that the Pentagon is preparing for weeks of ground operations in Iran, potentially including raids on Kharg Island and coastal sites near the Strait of Hormuz.

Iran’s parliament speaker, Mohammad Bagher Ghalibaf, said Iranian forces are waiting and ready to retaliate if US troops are deployed on the ground. Separately, Yemen’s Iran-aligned Houthis claimed two missile launches at Israel within 24 hours and warned that further attacks would follow in the coming days.  The Houthis' entry raises the risk of further disruption to global trade passing through the Bab el-Mandeb Strait off the Red Sea.

This remains supportive of a further rise in Crude Oil prices, fueling inflation fears and bolstering bets for a hawkish stance from the US Federal Reserve (Fed). In fact, traders now seem to have fully priced out the possibility of any further rate cuts by the US central bank and rapidly increasing bets for a hike by the end of this year. The outlook turns out to be another factor providing an additional boost to the USD and weighing on the non-yielding XAG/USD.

Even from a technical perspective, the range-bound price action might be categorized as a bearish consolidation phase against the backdrop of the recent breakdown below the 100-day Simple Moving Average (SMA). This validates the negative outlook and suggests that the path of least resistance for the XAG/USD is to the downside. That said, it will still be prudent to wait for sustained weakness below the range before positioning for any further depreciation.

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

Haresh Menghani

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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