Silver Price Forecast: XAG/USD edges lower below $48.50 on renewed US Dollar demand
- Silver price drifts lower to $48.40 in Tuesday’s Asian session.
- A renewed US Dollar demand weighs on the Silver price.
- Expectation of US interest rate cuts and the prospect of a prolonged US federal government shutdown boost the Silver price.
Silver price (XAG/USD) trades in negative territory near $48.45 during the Asian trading hours on Tuesday. The white metal retreats from the 14-year high as the rebound in the US Dollar (USD) weighs on the USD-denominated commodity price.
The USD recovers to fresh multi-day peaks on rising US yields, which undermine the Silver price as it makes Silver more expensive for investors and buyers using other currencies. Nonetheless, global uncertainty and expectations of future interest rate cuts by the US Federal Reserve (Fed) might cap its upside.
Uncertainty surrounding a US government shutdown and persistent geopolitical risks boosted demand for safe-haven assets like Silver. The US government shutdown entered its seventh day as US Senators failed to pass spending proposals to reopen the federal government.
On Sunday, US President Donald Trump said that his administration would begin laying off federal workers. The US September employment report was due for release on Friday, but was not published due to the government shutdown.
Additionally, growing expectations of additional Fed rate cuts also lend some support to the white metal. Lower interest rates could reduce the opportunity cost of holding Silver, supporting the non-yielding precious metal. Traders are currently priced in an additional 25 basis points (bps) cuts in both October and December, with a chance of 95% and 83%, respectively, according to the CME FedWatch tool.
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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