Silver Price Forecast: XAG/USD falls to near $63.50 amid Fed hike bets, higher oil prices
- Silver struggles as hotter August US inflation data drove market expectations for a September Fed rate hike up to 87%.
- US CPI rose 0.4% month-on-month in August, with annual inflation hitting 3.4% and core figures beating forecasts.
- Escalating Middle East tensions and a Saudi pipeline shutdown drove crude oil prices toward four-month highs.
Silver price (XAG/USD) loses its gains from the previous day, trading around $63.50 per troy ounce during Asian hours on Monday. Non-yielding Silver is currently facing significant headwinds driven by rising Federal Reserve (Fed) rate-hike expectations for the upcoming September decision. This shift follows hotter US inflation reports that have intensified pressure on the central bank to tighten monetary policy further.
According to data released by the Bureau of Labor Statistics, the US Consumer Price Index (CPI) rose 0.4% month-on-month in August, pushing the 12-month increase to 3.4%. Meanwhile, core CPI increased by 0.3% monthly, outpacing the prior and forecasted 0.2% gains. These figures have reinforced market expectations of a near-term rate increase, with the CME FedWatch tool indicating that financial markets have priced in an 87% probability of a quarter-point rate hike at the next meeting, up sharply from 59% the previous week.
In addition to monetary policy pressures, the white metal is struggling amid a protracted Middle East crisis that has kept oil prices elevated and delivered an inflationary shock to the global economy. Crude oil prices have surged toward four-month highs following a drone attack that forced Saudi Arabia to shut down a major crude pipeline.
The oil supply disruption has heavily impacted a critical transport route traditionally used to bypass the Strait of Hormuz. As a precautionary measure, operations on Saudi Arabia's East-West pipeline were suspended immediately following the attacks, and officials have not yet indicated when normal operations will resume.
Analysts at Rabobank highlight that “oil prices are rising again on news of the shutdown of Saudi Arabia’s East-West pipeline following drone strikes, and the Houthis’ seizure of strategic locations on the Red Sea coast.” They note that this renewed energy shock has already rippled through rates markets, with “bond yields surged late last week on rising oil and inflation (and debt) concerns,” and is now feeding into broader risk sentiment, as “Asian equity indices and US equity futures are broadly in the red today.”
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.