Silver Price Forecast: XAG/USD falls to near $54.00 due to higher oil prices
- Silver declines as higher oil prices spark inflation fears and boost expectations for further Fed rate hikes.
- Israeli election deadlock creates geopolitical uncertainty, though Netanyahu's political support appears to be weakening.
- Markets expect a Fed rate pause in October, but price in an 84.4% chance of December tightening.
Silver price (XAG/USD) depreciates after posting modest gains the previous day, trading around $54.10 per troy ounce during Asian hours on Wednesday. Traders await the US Federal Reserve’s upcoming policy decision due later in the day.
Non-yielding Silver faces renewed downward pressure as rising crude oil prices intensify inflationary fears and fuel expectations of further interest rate hikes. Oil prices climbed as traders closely monitored election results in Israel, which could significantly alter the political landscape and the trajectory of the Middle East conflict.
Exit polls indicate a tightly contested race, with Prime Minister Benjamin Netanyahu tied alongside opposition leader Gadi Eisenkot. As vote counting continues, neither political bloc appears to have secured a clear majority; however, these initial results reflect waning support for Netanyahu, who has long dominated Israeli politics and guided the nation through nearly three years of conflict.
Simultaneously, financial markets are focused on the central bank, where the Federal Reserve is widely expected to hold its benchmark interest rate steady in the 3.75% to 4.0% range at Wednesday's policy decision. CME FedWatch Tool data shows markets pricing in a 92.8% probability of a rate pause for the October meeting. Consequently, investors will scrutinize Fed Chair Kevin Warsh's upcoming press conference for guidance on the future rate trajectory, especially as market pricing reflects an 84.4% chance of a December rate hike.
Strategists at Scotiabank observe that, in contrast to the recent volatility in precious metals, energy markets have turned more subdued, with the price of crude appearing to have "settled into tight consolidation ranges." They note that WTI is holding "steady just above $100/bbl" while Brent remains anchored "above $115/bbl," underscoring a period of relative stability in benchmark crude contracts.
Strategists at Societe Generale argue that as long as the Fed keeps the door open to further tightening, the US currency should remain underpinned. They write that “if the FOMC message (whatever that looks like in the brave new world) keeps December hike expectations alive, our bias is to remain dollar-positive,” adding that, “unless the ECB is very hawkish, European economic fundamentals will weigh.”
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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