Silver Price Forecast: XAG/USD rises toward $31.50 due to escalating geopolitical tensions

Source Fxstreet
  • Silver price receives support from safe-haven flows amid rising geopolitical tensions.
  • China's PLA initiated drills in the Taiwan Strait and around Taiwan on Monday.
  • The non-yielding Silver gains support from growing expectations of the Fed slowing the pace of interest rate cuts.

Silver price (XAG/USD) extends its winning streak for the third consecutive day, trading around $31.30 per troy ounce during the Asian session on Monday. Silver price receives support from the safe-haven flows amid rising geopolitical tensions.

On Sunday, Hezbollah claimed responsibility for the drone attack in north-central Israel, killing at least four Israeli soldiers and over 60 people were injured, according to CNN. The number of injuries makes the attack one of the bloodiest on Israel since the war started last October.

China's military initiated drills in the Taiwan Strait and around Taiwan on Monday. A spokesperson for the US Department of State expressed serious concern regarding the People's Liberation Army's (PLA) military actions. In response, Taiwan's Defense Ministry stated, “We will not escalate conflict in our response.”

Non-yielding assets like Silver may have received support from rising expectations that the Federal Reserve (Fed) will slow the pace of interest rate cuts more than previously anticipated. Last week, data showed that US producer prices remained steady in September, alongside a surge in jobless claims, which challenged the perception of the US labor market's resilience to restrictive interest rates.

According to the CME FedWatch Tool, markets are pricing in almost 87% chance of a 25 basis point rate cut in November, with no expectation of a 50 basis point reduction. Lower interest rates make Silver more attractive to investors seeking higher returns, as the opportunity cost of holding non-yielding assets decreases.

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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