Silver Price Forecast: XAG/USD remains under pressure as bond yields, US Dollar rebound
- Silver price plummets to near $58.00 as US Treasury Yields and the US Dollar recover sharply.
- Fed policymakers remain concerned over mounting inflationary pressures.
- Higher oil prices would keep inflation expectations elevated.
Silver price (XAG/USD) is down 1.7% to near $58.00 during the European trading session on Friday. The white metal continues to decline throughout the day as United States (US) Treasury Yields have bounced back amid fears that inflationary pressures will remain elevated.
As of writing, 10-year US Treasury Yields are up 0.45% to near 4.68% after a weak performance in the opening trade.
Higher US Treasury Yields bode poorly for non-yielding assets, such as Silver.
In the monetary policy announcement on Wednesday, the Federal Reserve (Fed) left interest rates unchanged in the range of 3.50%-3.75%, and policymakers expressed mounting concerns regarding inflation remaining above the central bank’s 2% target.
Fed rhetoric in focus as TD warns of risks for 10y Treasuries
According to TD Securities, the tone from policymakers will be critical once the Fed’s communication blackout ends. The bank expects that “hawkish comments by FOMC members” should help “restore some of the Fed's inflation fighting credibility,” aligning with its view that recent labour-cost dynamics remain broadly consistent with the inflation mandate. However, TD cautions that, against this backdrop, “we see significant risk of 10y Treasuries breaking through key technical levels in the coming days,” underscoring the potential for renewed volatility along the US rates curve.
Meanwhile, elevated oil prices due to fears of constrained global energy supplies are also supporting US Treasury yields. Middle East energy supply concerns are expected to remain prolonged as Iran intends to monetize the Strait of Hormuz, a critical chokepoint to almost 20% of global energy supply.
In addition to higher US bond Yields, a sharp rebound in the US Dollar (USD) after a three-day losing streak is also hurting the Silver price. At press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades 0.35% higher to near 100.30.
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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