Silver Price Forecast: XAG/USD falls as US Dollar gains, geopolitical risks persist
- Silver declines on Wednesday, trading around $85.30 and down roughly 2.12% on the day.
- A stronger US Dollar and rising US Treasury yields reduce demand for the non-yielding metal.
- Ongoing geopolitical tensions linked to the US-Iran war keep market volatility elevated.
Silver (XAG/USD) trades lower on Wednesday, hovering around $85.30 at the time of writing, down 2.12% on the day. The precious metal struggles to extend its recent gains as a rebound in the US Dollar (USD) and higher US Treasury yields weigh on demand for non-yielding assets.
The US Dollar strengthens following the latest inflation data from the United States (US). The Consumer Price Index (CPI) rose by 0.3% MoM in February, accelerating from 0.2% in January and matching market expectations. On a yearly basis, headline inflation remained steady at 2.4%.
Core inflation, which excludes volatile food and energy prices, increased by 0.2% MoM and remained unchanged at 2.5% YoY. These figures suggest that inflationary pressures remain moderate but still above the Federal Reserve’s (Fed) 2% target.
Against this backdrop, investors expect the Federal Reserve (Fed) to maintain a cautious stance on monetary policy in the coming months. This outlook supports US Treasury yields and limits the appeal of precious metals such as Silver.
Meanwhile, the US Dollar also benefits from liquidity demand amid heightened geopolitical uncertainty. Risks of disruptions in the Strait of Hormuz, a key global Oil shipping route, remain a major concern for energy markets. Iranian officials warned that Oil prices could surge toward $200 per barrel if the conflict intensifies, while several shipping incidents were reported.
In response, the International Energy Agency (IEA) announced the decision to release around 400 million barrels of Oil from strategic reserves among member countries in an effort to contain surging energy prices.
The prospect of persistently high energy prices is fueling concerns about global inflation, which could complicate the outlook for monetary easing. In this environment, a firmer US Dollar and higher yields continue to cap upside momentum in Silver despite ongoing geopolitical tensions.
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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