Silver Price Forecast: XAG/USD remains below $29.50 due to improved US Dollar, yields
|- Silver price depreciates as US Dollar improves due to higher yields.
- The non-yielding Silver may rebound as recent US inflation data raised the expectations of the Fed reducing rates in 2024.
- Demand uncertainties in China, the largest consumer of Silver, might add to the pressure on prices.
Silver price (XAG/USD) halts its three-day winning streak, hovering around $29.30 per troy ounce during the European trading hours on Tuesday. The price of Silver faces the challenge of an improved US Dollar (USD), which could be attributed to the higher UST yields. Traders await Tuesday’s speech by Federal Reserve Chairman Jerome Powell to assess the monetary policy outlook.
The price of the grey metal may regain its ground as the recent US inflation data raised the expectations of the Federal Reserve (Fed) reducing interest rates in 2024. Lower interest rates could spark the demand of non-yielding assets like Silver.
On Friday, the US Bureau of Economic Analysis reported that recent US inflation eased to its lowest annual rate in over three years. The US Personal Consumption Expenditures (PCE) Price Index increased by 2.6% year-over-year in May, down from 2.7% in April. Meanwhile, Core PCE inflation rose by 2.6% year-over-year in May, down from 2.8% in April.
However, Federal Reserve Bank of San Francisco President Mary Daly remarked on Friday, "If inflation stays sticky or comes down slowly, rates would need to be higher for longer," according to Reuters.
Demand uncertainties in China might contribute to the pressure on Silver prices after an official report indicated a second consecutive month of manufacturing downturn in June. China's National Bureau of Statistics (NBS) reported that the Manufacturing PMI remained at 49.5.
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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