Silver Price Forecast: XAG/USD falls to near $75.00 as Fed turns hawkish
- Silver falls as a Middle East energy shock drives inflation, fueling expectations of higher central bank interest rates.
- CME FedWatch tool suggests that markets see a 48% chance of a December rate hike, up from 14% last week.
- UBS strategists cut Silver investment demand forecasts to 300 million ounces, citing weaker industrial demand and higher supply.
Silver price (XAG/USD) extends its losses for the third successive day, trading around $74.20 per troy ounce during the Asian hours on Monday. Silver prices fall because a Middle East energy shock is driving up broader inflation, leading to expectations of higher central bank interest rates.
US Federal Reserve (Fed) is shifting toward a more aggressive stance on inflation. Several Fed officials recently emphasized that controlling inflation is their top priority, even suggesting that further interest rate hikes could be necessary if price pressures persist. Financial markets have sharply increased the likelihood of a December rate hike to nearly 48%, up significantly from just 14% a week prior, according to the CME FedWatch tool.
The dollar-denominated metal also struggles due to a stronger US Dollar (USD), which could be attributed to increased risk aversion amid ongoing geopolitical conflicts. The United States (US) and Iran remain far from an agreement to end weeks of fighting and reopen the critical Strait of Hormuz shipping route.
US President Donald Trump escalated tensions by publicly warning Iran to make progress or face new consequences. Because the Strait remains effectively closed, global oil prices are continuing to climb, which places a heavy economic burden on countries that rely heavily on energy imports. Global investor anxiety is heightened further by warnings from Chinese leader Xi Jinping to President Trump that Taiwan could trigger direct clashes between their two economies.
UBS strategists hurt market sentiment by cutting their Silver investment demand forecast from over 400 million ounces to 300 million, blaming weaker industrial demand and higher mining supply. Consequently, they expect the global Silver deficit to shrink dramatically to 60–70 million ounces, down from the previous 300 million estimate.
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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