Silver Price Forecast: XAG/USD drifts lower below $36.50 on rising Middle East tensions
- Silver price loses ground to near $36.20 in Monday’s Asian session.
- The US UoM Consumer Sentiment Index improved in June.
- Geopolitical risks might help limit Silver’s losses.
The Silver price (XAG/USD) edges lower to around $36.20 during the Asian trading hours on Monday. The recovery in the Greenback weighs on the USD-denominated commodity price. However, the potential downside seems limited amid the escalating geopolitical tensions in the Middle East.
The upbeat US economic data released on Friday could provide some support to the US Dollar (USD). The University of Michigan Consumer Sentiment Index improved for the first time in six months, with the index rising to 60.5 in June from 52.2 in the previous reading. This reading came in above the market estimations of 53.5.
On the other hand, markets fear the Israel-Iran conflict could spill over into regional conflict, which boosts safe-haven assets like Silver. Israel started attacks on Iran on Friday, targeting nuclear facilities and missile factories and killing military leaders. Semi-official Iranian media outlet Mehr News reported on Sunday that the fourth phase of Iran’s operation against Israel has begun. Iranian officials underscored that they would “respond firmly to any adventurism” from Israel.
The US Federal Reserve (Fed) policy meeting on Wednesday will be closely watched. The Fed is anticipated to keep interest rates steady at its June meeting. However, futures markets expect two rate cuts by year-end, possibly starting in September, bolstered by tame inflation data last week.
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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