Silver Price Forecast: XAG/USD appreciates to near $28.00 due to safe-haven flows
|- Silver prices edge higher as tensions in the Middle East drive traders to seek safe-haven assets.
- The Israel Defense Forces intercepted approximately 30 "projectiles" crossing from Lebanon early Monday.
- The diminished odds of a 50-basis point rate cut by the Fed in September may weaken non-yielding assets like Silver.
Silver price (XAG/USD) rises to near $28.00 per troy ounce during the European session on Monday. The rising geopolitical tensions in the Middle East contribute support for the safe-haven metals like Silver.
Israel Defense Forces (IDF) intercepted around 30 "projectiles" crossing from Lebanon into northern Israel early Monday. The IDF stated that some projectiles landed in open areas, and no injuries were reported, as reported by ABC News.
Additionally, Reuters cited Gaza Civil Emergency Service on Saturday, the Israeli incursion into Gaza escalated with an airstrike targeting a school compound, leading to at least 90 fatalities. However, Israel has contested this casualty figure, labeling it as exaggerated. Meanwhile, Hamas has expressed uncertainty about engaging in new ceasefire negotiations on Sunday.
Last week’s upbeat US economic data led traders to reduce their expectations for a 50-basis point interest rate cut by the US Federal Reserve in September. The CME FedWatch Tool indicates a 46.5% chance of a two-quarter-basis point rate cut by the Fed at the September meeting, a significant decrease from the 74.0% probability reported a week ago. The expectations of prolonging higher interest rates may put pressure on non-yielding assets like Silver.
Meanwhile, Bloomberg reported on Sunday that Federal Reserve Governor Michelle Bowman stating to continues seeing upside risks for inflation and ongoing strength in the labor market. Bowman suggested that the Federal Reserve may not be prepared to cut rates at its next meeting in September.
The weak outlook for global manufacturing activity has dampened demand for Silver as an industrial input. The ISM PMI dropped more than expected, highlighting the sluggish factory momentum in the US. Traders are likely to focus on US producer inflation data due on Tuesday and consumer inflation figures on Wednesday, looking for confirmation that price growth remains stable.
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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