Silver (XAG/USD) was trading lower on Wednesday, hovering around $85.30 at the time of writing, down 2.12% on the day. The precious metal is struggling to extend its recent gains as a surge in the US dollar (USD) and higher US Treasury yields hit demand for non-yielding assets.
The US dollar has strengthened after the latest inflation data from the United States of America (US). The consumer price index (CPI) rose 0.3% MoM in February, accelerating from 0.2% in January and matching market expectations. On an annual basis, headline inflation remained steady at 2.4%.
Core inflation, which excludes volatile food and energy prices, rose 0.2% MoM and was unchanged at 2.5% YoY. These data suggest that inflation pressures remain moderate but still above the Federal Reserve (Fed)’s 2% target.
Against this backdrop, investors expect the Federal Reserve (Fed) to maintain a cautious stance on monetary policy in the coming months. This approach supports US Treasury yields and limits the appeal of precious metals like silver.
Meanwhile, the US dollar also benefited from demand for liquidity amid rising geopolitical uncertainty. The risk of disruption in the Strait of Hormuz, a key global oil shipping route, remains a major concern for energy markets. Iranian officials warned that oil prices could rise to $200 a barrel if the conflict escalated, while several shipping incidents were recorded.
In response, the International Energy Agency (IEA) announced a decision to release approximately 400 million barrels of oil from strategic reserves among member countries in an effort to curb rising energy prices.
The prospect of persistently high energy prices is raising concerns about global inflation, which could complicate the outlook for monetary easing. In this environment, silver continues to rise despite ongoing geopolitical tensions driven by a stronger US dollar and higher yields.
Silver FAQ
Silver is a precious metal that is highly traded among investors. Historically it has been used as a store of value and medium of exchange. Although less popular than gold, traders may turn to silver to diversify their investment portfolios, for its intrinsic value, or as a potential hedge during high inflation periods. Investors can purchase physical silver in coins or bars, or trade it through vehicles such as exchange traded funds, which track its price in international markets.
Silver prices may increase due to many factors. Geopolitical instability or fears of a deep recession may cause the price of silver to rise due to its safe-haven status, although to a lesser extent than gold. As a yield free asset, silver tends to rise with low interest rates. Its movement also depends on how the US dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong dollar keeps the price of silver in check, while a weak dollar will likely push prices higher. Other factors such as investment demand, mining supply – silver is much more abundant than gold – and recycling rates can also influence prices.
Silver is widely used in industry, especially in areas such as electronics or solar energy, because it has the highest electrical conductivity of all metals – even higher than copper and gold. An increase in demand can cause prices to rise, while a decline can cause prices to decrease. Dynamics in the US, Chinese and Indian economies can also contribute to price fluctuations: for the US and especially China, their large industrial sectors use silver in a variety of processes; In India, consumer demand for the precious metal for jewelery also plays an important role in determining prices.
Silver prices follow the movement of gold. When gold prices rise, silver usually follows, as they have the same status as a safe-haven asset. The gold/silver ratio, which shows the number of ounces of silver required to equal the value of one ounce of gold, can help determine the relative valuation between the two metals. Some investors may consider a high ratio as an indicator that silver is undervalued, or gold is overvalued. Conversely, a low ratio may indicate that gold is less valuable than silver.
