Silver Price Forecast: XAG/USD depreciates toward $29.50 despite a dovish Fed
|- Silver price pares its intraday gains despite a dovish sentiment surrounding the US Fed.
- Fed’s Powell indicated that the time for rate cuts has arrived, but did not provide the extent of the reductions.
- The grey metal received support from the safe-haven flows amid rising Middle-East tensions.
Silver (XAG/USD) price edges lower to near $29.70 per troy ounce during the Asian session on Monday. However, the non-yielding Silver also attracts investors as the Federal Reserve (Fed) is highly expected to deliver atleast a 25-basis point rate cut in September. According to the CME FedWatch Tool, markets are now fully anticipating at least a quarter-basis point (bps) rate cut by the Federal Reserve at its September meeting.
Additionally, Fed Chairman Jerome Powell stated at the Jackson Hole Symposium on Friday, "The time has come for policy to adjust." Although Powell did not specify when rate cuts would begin or their potential size, he noted that job market risks have increased while inflation risks have decreased.
The price of the safe-haven Silver gained ground due to concerns about escalating conflict in the Middle East. Hezbollah launched hundreds of rockets and drones into Israel on Sunday, prompting a response from the Israeli military, which deployed around 100 jets to strike Lebanon to prevent a larger assault. This escalation heightens concerns that the ongoing Gaza conflict could expand into a broader regional conflict, potentially involving Hezbollah's supporter, Iran, and Israel's primary ally, the United States, according to Reuters.
Silver demand could be impacted by recent data from China’s National Bureau of Statistics, which indicates a struggling economy in the world’s largest manufacturing hub. As Silver plays a crucial role in various industrial applications, this downturn in industrial activity could pose significant challenges to its demand.
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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