Silver Price Forecast: XAG/USD slips below $64.00 on profit taking
- Silver falls as profit-taking, Fed policy expectations, and Middle East tensions weigh on investor sentiment.
- Market attention turns to upcoming US July Retail Sales data following soft inflation reports.
- CME FedWatch shows September Fed rate hike probability dropping from 40% to 34.8%.
Silver price (XAG/USD) extends its losses for the second consecutive day, trading around $63.50 per troy ounce during the Asian hours on Friday. Silver price falls as investors opted to take profits while weighing the Federal Reserve’s (Fed) monetary policy trajectory alongside ongoing geopolitical tensions in the Middle East.
Cooling inflation data further shaped market sentiment, as the Bureau of Labor Statistics reported that US wholesale prices for goods and services remained flat in July. This came in softer than the expected 0.2% growth and followed a revised 0.1% decline in June. Excluding the volatile food and energy sectors, core Producer Price Index (PPI) figures nudged up 0.2%, slightly below the consensus estimate of 0.3%. On a year-over-year basis, headline PPI rose 4.7% while core PPI increased 4.2%.
These softer inflation numbers have prompted market participants to recalibrate their expectations for Federal Reserve interest rate policy. According to the CME FedWatch Tool, the implied probability of a rate hike at the Fed’s September meeting dropped to 34.8%, down from 40% immediately following the PPI release. At the same time, diplomatic negotiations to reopen the Strait of Hormuz have stalled, leaving investors wary of a potential escalation that could spark higher energy costs and rekindle inflationary forces.
Silver draws strong CTA interest as prices test key trigger
According to TD Securities, "Silver stands out for near-term CTA flows," with the bank highlighting that "prices above $66.80/oz" are "likely to see further buying." Their models suggest that commodity trading advisers are "likely to add 3-4% of historic max length under all pricing scenarios into next week," underscoring robust systematic demand for the metal on sustained price strength.
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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