Silver price (XAG/USD) depreciates after two days of gains, trading around $81.70 per troy ounce during the European hours on Tuesday. Silver prices dropped more than 2.5% as traders probably booked profits, while volatility in the precious metals market remained elevated after a historic selloff in recent weeks.
The safe-haven metal could regain strength amid persistent geopolitical tensions between the United States (US) and Iran. Uncertainty continues as Iran insists on maintaining uranium enrichment, a key sticking point for Washington. On Monday, the US warned American-flagged vessels to avoid Iranian waters in the Strait of Hormuz, even as both sides indicated that talks would continue following what were described as constructive discussions in Oman last Friday.
US Treasury Secretary Scott Bessent blamed the sharp swings in metals prices on Chinese trading activity, characterizing the recent rally as a speculative blowoff. Commenting on Federal Reserve policy, Bessent said he expects the central bank to proceed cautiously with any balance-sheet reduction.
Meanwhile, Federal Reserve (Fed) Board Governor Stephan Miran said on Monday the Fed should remain fully independent of political influence, before tempering his remarks by noting that complete, 100% independence is “impossible.”
Markets currently expect the Fed to leave interest rates unchanged in March, with rate cuts priced in for June and possibly September. It is worth noting that changes in interest rates directly impact non-interest-bearing assets such as Silver.
Traders are now awaiting the US Retail Sales data later in the North American session. Attention will then turn to the delayed January employment report and upcoming CPI figures later this week, which are expected to influence expectations around economic cooling and the timing of potential Federal Reserve easing.
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.
