Silver Price Forecast: XAG/USD depreciates toward $30.50 due to risk-on sentiment
|- Silver prices face challenges due to a reduced demand for safe-haven assets following Trump’s election victory.
- The demand for riskier assets improves as markets assess the potential impacts of the proposed Trump policies.
- The dollar-denominated Silver struggles due to a stronger US Dollar and rising Treasury yields.
Silver prices (XAG/USD) experiences a third consecutive day of declines, trading around $30.60 per troy ounce during the Asian session on Tuesday. The precious metals sector, including Silver, is facing pressure due to a reduced demand for safe-haven assets.
Traders are increasingly shifting toward riskier assets as markets assess the potential impacts of US President-Elect Trump’s potential fiscal policies and monetary strategies. The possibility of tariffs being implemented early in Trump’s presidency could lead to inflation, which in turn may cause the Federal Reserve (Fed) to delay its expected easing measures in the coming year.
As a result, the dollar-denominated Silver is also struggling amid a stronger Greenback and rising US Treasury yields. The US Dollar Index (DXY), which tracks the value of the US Dollar against six major currencies, is hovering near a four-month high at 105.70. Meanwhile, the yields on 2-year and 10-year US Treasury bonds are at 4.28% and 4.32%, respectively, at the time of writing.
China’s recent stimulus measures have fallen short of investor expectations, undermining earlier hopes for industrial support in the largest manufacturing hub and negatively impacting the outlook for industrial metals across the board. This has put additional pressure on Silver, which has significant usage in electrification, particularly in solar panels.
Last week, China announced a 10 trillion Yuan debt package aimed at easing local government financing pressures and boosting the economy. However, the package did not include direct economic stimulus measures, which many had hoped for.
Meanwhile, Chinese-owned solar panel manufacturers have begun scaling back production, partly due to concerns that Trump’s election victory in the US could lead to higher tariffs on the sector. Morgan Stanley has predicted that the Trump administration may impose immediate tariffs of 60% on imports from China.
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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