Silver price (XAG/USD) falls to around $56.70 during the Asian trading hours on Tuesday. The white metal faces some profit-taking after reaching a record high in the previous session. However, expectations that the US central bank will cut interest rates further this month and persistent concerns over global supply tightness might cap its downside.
Silver retreats from an all-time high reached on Monday as traders book some profit ahead of the key US economic data later this week. The surge in the Silver price on the previous day was due to a 10-hour outage at CME Group’s data center in Illinois caused by a cooling-system failure.
Increased expectations that the US Federal Reserve (Fed) will cut interest rates in its December policy meeting could provide some support to the XAG/USD. Markets are fully pricing in a 25 basis points (bps) rate reduction on continued weakness in the US labor market and dovish remarks by Fed officials over the last week. Lower interest rates could reduce the opportunity cost of holding Silver, supporting the non-yielding precious metal.
The white metal continues to face supply pressures from global centers following last month’s historic squeeze in London. The recent data reveal that silver inventories in warehouses linked to the Shanghai Futures Exchange fell to their lowest level in over a decade.
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.