Silver Price Forecast: XAG/USD slips below $57.00 as surging oil fuels inflation fears
- Silver declines as drone strikes in Middle East and Ukraine disrupt oil infrastructure, driving up energy prices and inflation fears.
- Conflict in the Middle East and Iranian demands for US sanctions relief continue to heighten market uncertainty.
- Traders price in steady rates next week, but a 90% chance of a December hike pressures non-yielding Silver.
Silver price (XAG/USD) loses ground for the second successive day, trading around $56.80 per troy ounce during Asian hours on Thursday. Non-yielding Silver faces challenges as surging oil prices fuel inflation fears and boost expectations of a Federal Reserve (Fed) rate hike.
Crude oil prices advanced following a drone attack on Saudi Aramco’s Shaybah oil field that resulted in two casualties, intensifying geopolitical friction in the Middle East and raising concerns over potential energy supply disruptions. In tandem, Ukraine executed large-scale drone strikes against critical Russian oil infrastructure this week, signaling Kyiv's intent to impede Moscow's planned expansion of diesel exports under a recent agreement between Presidents Trump and Putin.
Adding to the regional geopolitical complexity, Iranian Foreign Minister Abbas Araghchi stated on Wednesday that the United States must lift its naval blockade and demonstrate a genuine commitment to a diplomatic resolution. Araghchi emphasized Tehran's readiness to resume negotiations if there is concrete evidence of a sincere American effort toward a just and permanent end to the conflict.
Energy risks rise as new Cold War reshapes supply chains
Analysts at Rabobank stress that the evolving geopolitical backdrop cannot be dismissed, arguing that the latest shifts in US policy and regional tensions underscore how “it matters enormously because energy still does, especially in a new Cold War along supply chains.” In their view, the reordering of strategic alliances and trade routes is reinforcing the centrality of energy security, leaving markets more exposed to sudden disruptions and amplifying volatility across Oil-linked assets.
Market participants are carefully evaluating the trajectory of the Federal Reserve’s (Fed) monetary policy leading into next week’s meeting. Uncertainty persists after Fed Chair Kevin Warsh refrained last week from offering guidance on the timing or necessity of future interest rate hikes. According to the CME FedWatch Tool, traders are pricing in an 84% probability that the Fed will hold interest rates steady next week, alongside a 90% chance of a rate hike in December.
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.
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