Silver Price Forecast: XAG/USD moves above $31.50 as US Treasury yields ease
- Silver price appreciated as US Treasury yields declined following weak NY Empire State Manufacturing Index release on Tuesday.
- 2-year and 10-year yields on US Treasury bonds stand at 3.95% and 4.03%, respectively, by the press time.
- The safe-haven Silver may appreciate further as Israel may intensify its ground operations against Hezbollah.
Silver price (XAG/USD) continues its winning streak for the fifth consecutive day, hovering around $31.70 per troy ounce during the Asian trading hours on Wednesday. The non-yielding Silver has found support as US Treasury yields declined in response to disappointing manufacturing data released on Tuesday.
The NY Empire State Manufacturing Index unexpectedly dropped by 23 points to a reading of -11.9 in October, marking its lowest level in five months. This decline indicates a contraction in business activity in New York, following a growth reading of 11.5 in September.
2-year and 10-year yields on US Treasury bonds stand at 3.95% and 4.03%, respectively, at the time of writing. Lower yields boost the appeal of precious metals like Silver. However, last week’s strong US jobs and inflation data have reduced expectations for aggressive easing by the Federal Reserve (Fed) in 2024.
Markets are now forecasting a total of 125 basis points in rate cuts over the next year. According to the CME FedWatch Tool, there is currently a 94.1% probability of a 25-basis-point rate cut in November, with no expectation of a larger 50-basis-point reduction.
On Tuesday, Federal Reserve Bank of Atlanta President Raphael Bostic stated that he anticipates just one more interest rate cut of 25 basis points this year, as reflected in his projections during last month's US central bank meeting. "The median forecast was for 50 basis points beyond the 50 basis points already implemented in September, according to Reuters.
Silver prices are also receiving support from safe-haven flows due to the ongoing uncertainty surrounding the Middle East conflict. Israel may intensify its ground operations against Hezbollah while reinforcing its defenses. Reports from Reuters indicate that Israeli troops have cleared landmines and set up new barriers along the border between the Israeli-occupied Golan Heights and the demilitarized zone adjacent to Syria.
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.
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