Silver Price Forecast: XAG/USD dips as oil surge lifts Fed hike odds
- Silver falls as Middle East conflicts boost oil, raising inflation fears and expectations of prolonged high Federal Reserve rates.
- The CME FedWatch Tool shows a 51% chance of a September Fed rate hike versus a 23% hold probability.
- Trump reinstated an Iranian blockade and imposed a 20% transit fee on other vessels securing the strait.
Silver price (XAG/USD) loses ground for the third consecutive day, trading around $57.60 per troy ounce during the Asian hours on Tuesday. The price of the non-yielding white metal faces challenges as escalating Middle East tensions drive oil higher, stoking fears that energy-driven inflation will force the Federal Reserve (Fed) to keep interest rates elevated.
Market expectations have shifted rapidly in response, with the CME FedWatch Tool now showing a 51% probability of a Fed rate hike in September, compared to just a 23% chance that rates will stay on hold.
US President Donald Trump has reinstated a naval blockade targeting Iranian vessels and customers transiting the Strait of Hormuz, while simultaneously announcing that all other commercial cargo passing through the strategic waterway will be subject to a 20% reimbursement fee.
Market participants are awaiting two massive macroeconomic catalysts scheduled for Tuesday. The US June Consumer Price Index (CPI) report, where analysts anticipate a divergence between a 0.1% month-on-month decline in headline inflation and a sticky 0.3% increase in the core reading.
Federal Reserve Chair Kevin Warsh will deliver highly anticipated congressional testimony, a session that traders will dissect word-by-word for hints on whether the central bank will validate the market's growing hawkishness.
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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