Silver Price Forecast: XAG/USD wobbles around $65.40, easing hawkish Fed bets strengthen outlook
- Silver price consolidates at around $65.40 with US PPI data in focus.
- Soft US retail inflation data for July has allowed traders to trim hawkish Fed bets.
- Both the US headline and core CPI growth cooled down as expected.
Silver price (XAG/USD) trades in a tight range at around $65.40 during the Asian trading session on Thursday. The Silver price struggles for a direction; however, an expected slowdown in United States (US) inflationary pressures in July has improved its outlook.
On Wednesday, the US Bureau of Labor Statistics reported that the headline Consumer Price Index (CPI) growth cooled down to 3.4% Year-on-Year (YoY) from 3.5% in June. The core CPI – which excludes volatile food and energy items – also arrived lower at 2.5% YoY, as expected, against the previous reading of 2.6%.
Signs of price pressures cooling down have eased fears of Federal Reserve (Fed) interest rate hikes in the near term. According to the CME FedWatch tool, the odds of the Fed holding policy rates steady in the September meeting have increased to almost 60% from 30.4% seen a month ago.
Such a scenario bodes well for non-yielding assets, like Silver.
Going forward, investors will focus on the US Producer Price Index (PPI) data for July, which will be published at 12:30 GMT.
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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