Silver (XAG/USD) was trading strongly on Tuesday, hovering around $89.55 at the time of writing, up 2.90% on the day. The white metal benefits from a more supportive backdrop for non-yielding assets as the US Dollar (USD) weakens and US Treasury yields slide, boosting demand for the precious metals.
The greenback’s decline comes as the market continues to price in potential monetary easing from the Federal Reserve (Fed) in the second half of the year. According to the CME FedWatch tool, investors currently see a 43.4% chance that the Fed could make its first interest rate cut of the year in July, while the probability of a move in early June is closer to 37%. Low interest rates support non-yielding assets like silver.
At the same time, the sharp fall in oil prices is helping to reduce inflation concerns. The G7 reaffirmed its readiness to take “necessary measures” to support global energy supplies, according to Japan’s Industry Minister Ryoshi Akazawa, quoted by Reuters on Tuesday. These developments reinforce the view that price pressures may ease in the coming months. This also strengthens expectations of monetary easing, providing additional support to the precious metal.
On the geopolitical front, market sentiment remains cautious as the conflict between the United States (US) and Iran has entered its eleventh day. There are reports of airstrikes across the Middle East, while tensions remain high around the Strait of Hormuz. This uncertain backdrop continues to support demand for safe-haven assets like silver.
Looking ahead, investors are focused on upcoming US macroeconomic releases, particularly the consumer price index (CPI) due on Wednesday and the personal consumption expenditure (PCE) price index scheduled for Friday, both key indicators for the Fed’s monetary policy outlook.
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.
(This story was corrected on March 10 at 17:25 GMT to say that Japan’s industry minister is named ryosei Akazawa, not Yoji Muto Akazawa.)
