Silver price (XAG/USD) extends its losses for the second successive session, trading around $87.20 per troy ounce during the early European hours on Tuesday. The precious metal faces challenges despite increased safe-haven demand amid the Middle East war.
The dollar-denominated Silver loses attraction amid a stronger US Dollar (USD) as the grey metal becomes more expensive in other currencies. The Greenback strengthens on heightened safe-haven demand amid the Middle East war.
US military officials said on Tuesday that they have destroyed command posts of Iran’s Revolutionary Guards as well as Iranian air defense and missile launch sites since the start of the joint Israeli-US offensive on Saturday.
A Reuters report cited Ebrahim Jabari, senior adviser to the commander-in-chief of the Islamic Revolutionary Guard Corps, as saying: “The Strait of Hormuz is closed. If anyone tries to pass, the Revolutionary Guards and the regular navy will set those ships ablaze.”
Additionally, higher US Treasury yields offset safe-haven demand for Silver. The 10-year yield rose to 4.07% after climbing 10 basis points, as escalating Middle East tensions boosted energy prices and inflation concerns.
Rising fuel costs intensified inflation concerns, prompting traders to reassess the outlook for Federal Reserve (Fed) policy. Expectations for the next Fed rate cut have shifted to July from June, according to the CME FedWatch tool, though markets still price in two 25 basis point reductions.
(This story was corrected on March 3 at 10:10 GMT to say that expectations for the next Fed rate cut have shifted to July from June, not to September from July.)
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.