Silver Price Forecast: XAG/USD moves below $32.00 on worries over China stimulus measures

출처 Fxstreet
  • Silver price loses ground amid concerns over whether China’s stimulus plans will be sufficient to boost demand.
  • PBOC has reduced the Reserve Requirement Ratio by 50 basis points and the seven-day repo rate from 1.7% to 1.5%.
  • The safe-haven Silver may regain ground due to rising tensions in the Middle East.

Silver price (XAG/USD) retraces its recent gains from the previous session, trading around $31.80 per troy ounce during Wednesday’s European hours. The prices of grey metal depreciate as traders re-evaluate the effectiveness of China’s stimulus plans to significantly boost its economy, the world's largest metals market.

Silver metal is vital to various industrial sectors, such as electronics, solar panels, and automotive components. As one of the world’s largest manufacturing hubs, China’s industrial demand for Silver plays a significant role in driving the global consumption of this precious metal.

On Tuesday, People's Bank of China (PBOC) Governor Pan Gongsheng announced that China will reduce the Reserve Requirement Ratio (RRR) by 50 basis points (bps). Gongsheng also noted that the central bank would lower the seven-day repo rate from 1.7% to 1.5%, and reduce the down payment for second homes from 25% to 15%.

However, JP Morgan, in a note, advised investors to monitor commodities and bond yields in light of the positive market outlook following China's stimulus proposals on Tuesday. The bank emphasized that global growth has received a new boost from China, a factor that has been lacking in recent years. This development notably reduces the risk of a recession and is seen as favorable for the markets. However, JP Morgan also cautioned about the potential risk of reinflation.

The downside risk for safe-haven Silver may be limited due to escalating tensions in the Middle East. An Israeli airstrike on Beirut killed a senior Hezbollah commander on Tuesday, heightening concerns of a potential full-scale war as cross-border rocket attacks intensified. Hezbollah confirmed on Wednesday that senior commander Ibrahim Qubaisi was killed in the Israeli airstrikes on the Lebanese capital, as previously reported by Israel, per Reuters.

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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