Silver Price Forecast: XAG/USD remains steady near $94.00 as oil prices ease

Easing oil prices cushion Silver as US-Iran talks lower inflation fears, though easing supply concerns offset gains.
A surging US Dollar and multi-year high Treasury yields continue to cap non-yielding Silver’s upside potential.
Fed rate hike expectations jump to 67.5% for October, raising the opportunity cost of holding metal assets.

Silver price (XAG/USD) inches higher after two days of losses, trading around $63.90 per troy ounce during Asian hours on Friday. Non-yielding Silver is finding underlying support as inflation concerns ease following a pullback in crude oil prices. Energy markets turned lower amid reports that the United States and Iran are considering a phased agreement, mediated by Qatari officials on the sidelines of the UN General Assembly, that could lift the US blockade on Iranian ports and reopen the strategic Strait of Hormuz.

Análisis de TMGM: noticias de mercados financieros, calendario económico e información del mercado

Despite this reprieve in energy costs, silver faces significant headwinds from a strengthening US Dollar and surging Treasury yields. Investors are increasingly pricing in further monetary tightening by the Federal Reserve to contain broader price pressures. According to the CME FedWatch Tool, market expectations for an October benchmark interest rate hike have climbed to nearly 67.5%, up sharply from 55.4% a week ago and just 11% a month earlier.

This hawkish shift in monetary expectations has triggered a sharp sell-off in US government bonds. The 30-year US Treasury yield surged to a high of 5.501%—its highest mark since June 2004—while the benchmark 10-year Treasury yield rose to 5.223%, touching a level not recorded since June 2007. Higher yields raise the opportunity cost of holding non-yielding assets like silver, capping its upside potential.

US yields climb as higher-for-longer Fed stance lifts borrowing costs

Economists at ING highlight that US borrowing costs have moved higher as markets respond to “elevated energy prices and a belief that the Federal Reserve is set to tighten policy and keep interest rates higher for longer.” They note that, against a backdrop of “substantial government fiscal deficits and anxiety about debt sustainability,” longer-dated US Treasury yields have “pushed above 5%,” reinforcing the upward pressure on financing costs across the economy. While “corporate bond spreads have tightened,” ING stresses this has not been sufficient “to prevent an overall rise in borrowing costs,” leaving companies and households facing a more challenging funding environment.

Silver FAQs

Why do people invest in Silver?

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.

Which factors influence Silver prices?

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.

How does industrial demand affect Silver 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.

How do Silver prices react to Gold’s moves?

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.

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