Silver Price Forecast: XAG/USD drops to near $60.50 amid surging oil, Treasury yields
- Silver declines as elevated oil prices drive inflation concerns and expectations of further Federal Reserve rate hikes.
- Stalled US-Iran nuclear talks push oil higher, adding upward pressure to multi-year high Treasury yields.
- Markets price in a 70% chance of an October rate hike ahead of key PCE and payrolls data.
Silver price (XAG/USD) continues to lose ground after registering over 5% losses in the previous day, trading around $60.60 per troy ounce during Asian hours on Tuesday. Non-yielding Silver price declined as ongoing uncertainty surrounding US-Iran negotiations kept oil prices elevated. This persistent pressure on energy costs has heightened expectations that the Federal Reserve (Fed) will need to tighten monetary policy further to combat inflation.
The surge in oil prices resumed after Iranian officials expressed doubt about reaching an agreement prior to the upcoming US midterm elections in November. The standstill follows US President Donald Trump’s recent rejection of Tehran’s latest proposal, which stalled diplomatic momentum.
Rising inflation concerns and expectations of additional rate increases pushed Treasury yields to fresh multi-year highs, creating headwinds for non-yielding assets like Silver. Following the central bank’s initial rate hike in three years earlier this month, money markets are currently pricing in roughly a 70% probability of another Federal Reserve rate increase in October.
OIS curve shows investors still pricing in multiple Fed hikes
Strategists at Rabobank highlight that positioning in US rates remains firmly tilted toward further tightening, with the bank noting that “the OIS curve suggests investors are still positioned for more than three hikes by the end of next year.” This underscores that, despite the recent 25bp move from the Fed, market participants continue to anticipate a relatively extended policy tightening cycle.
Market attention now shifts toward upcoming US economic indicators for signals regarding future monetary policy. Key releases later this week include Wednesday’s US Personal Consumption Expenditures (PCE) inflation report and Friday’s Nonfarm Payrolls report.
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.