Silver Price Forecast: XAG/USD maintains position near $31.00 near two-month highs

Source Fxstreet
  • Silver price appreciates as the non-yielding asset becomes more appealing after the bumper 50 basis point Fed rate cut.
  • BoE, PBoC, and BoJ all decided to keep their interest rates unchanged in September.
  • The safe-haven Silver receives support from escalating tensions in the Middle East, as Israeli warplanes conducted intense strikes on southern Lebanon.

Silver price (XAG/USD) extends its gains for the second successive day, trading around $31.10 per troy ounce on Friday. The non-yielding Silver receives support following the bumper 50 basis point rate cut by the US Federal Reserve (Fed) on Wednesday.

Additionally, increasing expectations for further rate cuts by the US Federal Reserve by the end of 2024 are putting pressure on Silver demand. The latest dot plot projections indicate a gradual easing cycle, with the median rate for 2024 revised down to 4.375% from the previous forecast of 5.125% in June.

As a non-yielding commodity asset, the precious metal becomes more appealing to investors in a lower interest rate environment, as the opportunity cost of holding it decreases. This can make Silver potentially offer better returns compared to other assets.

Meanwhile, the People’s Bank of China (PBoC) decided to keep its one-year Loan Prime Rate (LPR) unchanged at 3.35%, while the Bank of Japan (BoJ) maintained its interest rate at 0.15% on Friday. Additionally, on Thursday, the Bank of England (BoE) opted to hold its interest rate at 5%, as widely expected.

The safe-haven demand for Silver was bolstered by escalating tensions in the Middle East, as Israeli warplanes conducted their most intense strikes on southern Lebanon in nearly a year of conflict late Thursday. The White House stated that a diplomatic solution was both achievable and urgent, while Britain called for an immediate ceasefire between Israel and Hezbollah, according to Reuters.

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.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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