Silver Price Forecast: XAG/USD rises above $32.00 toward monthly highs
- Silver price bounced back toward Monday's monthly high of $32.28.
- Precious metals, including silver, gained support on news of potential economic stimulus measures from China.
- Non-yielding assets like Silver receive support from the rising likelihood of the Fed’s rate cut again in December.
Silver price (XAG/USD) extends its gains for the third successive session, trading around $32.00 during the Asian hours on Wednesday. The demand outlook for precious metals, including Silver, in the world’s largest consumer of raw materials has been increased following news of potential economic stimulus from China.
The Politburo announced plans to adopt a “moderately loose” monetary policy and a “more proactive” approach to fiscal stimulus next year, marking a departure from the more cautious tone of the past decade.
Silver prices receive support from increased odds of the US Federal Reserve (Fed) cutting interest rates again in December. Markets are now pricing in nearly an 85.8% chance of Fed rate reductions by 25 basis points, according to the CME FedWatch Tool.
However, the upside of the Silver price could be restrained due to the stronger US Dollar (USD), which makes dollar-denominated Silver less affordable for buyers with foreign currencies, dampening its demand.
The US Dollar gains ground as traders adopt caution ahead of the US Consumer Price Index (CPI) data scheduled to be released on Wednesday. The US CPI inflation is estimated to rise to 2.7% YoY in November from 2.6% in October. Meanwhile, the core CPI, excluding Food & Energy, is expected to increase 3.3% YoY. Any indications of stalled progress could significantly diminish the likelihood of a Federal Reserve’s (Fed) rate cut.
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.