- Silver prices rose to around $29.45 in the early morning European session on Thursday, up 1.03% from the previous day.
- Further weakening of the US dollar and continuing tensions in the Middle East are supporting silver prices.
- Investors are awaiting the second estimate of U.S. second-quarter GDP growth on Thursday, ahead of the release of the PCE inflation data.
Silver prices (XAG/USD) rose to nearly $29.45 in the early hours of the European session on Thursday, as ongoing geopolitical tensions in the Middle East and a weakening US Dollar (USD) on expectations of a Federal Reserve rate cut are lending some support to the platinum metal.
Expectations that the Federal Reserve will begin easing monetary policy in September have put some selling pressure on the US dollar, supported by dollar-denominated silver prices making silver cheaper for most buyers. The futures market is fully pricing in a 25 basis points (bps) rate cut in September, with the probability of another rate cut at 36.5%, according to the CME FedWatch tool.
Moreover, tensions in the Middle East remain high and market participants will be closely watching developments surrounding the conflict between Israel and Hezbollah. Any signs of an escalation in the conflict could send the price of the platinum metal higher.
Meanwhile, a stronger US dollar could lead to a pullback in gold. The annualized US Gross Domestic Product (GDP) figures due on Thursday and the Personal Consumption Expenditures (PCE) price index due on Friday could give some hints about the direction of US interest rates. The US economy is expected to have grown 2.8% in the second quarter in second-quarter estimates, while core PCE, the Fed's preferred inflation measure, is forecast to have risen to 2.7% year-on-year in July from 2.6%.
Silver FAQ
Silver is a precious metal that is frequently traded among investors. Historically, silver has been used as a store of value and a means of exchange. Although it is not as popular as gold, traders sometimes use silver to diversify their investment portfolios due to its intrinsic value and as a potential hedge during periods of high inflation. Investors can either physically purchase silver in the form of coins or bars, or trade it through vehicles such as exchange-traded funds that track the price of silver on the international market.
Silver prices fluctuate due to a variety of factors. Geopolitical instability or fears of a deep recession can send silver prices soaring due to its safe haven status, but not as much as gold. As a non-yielding asset, silver tends to rise in value the lower interest rates are. The asset is also priced in dollars (XAG/USD), so its movements are also driven by movements in the US Dollar (USD). A strong dollar tends to suppress silver prices, while a weak dollar can drive prices higher. Other factors such as investment demand, mining supply (silver is much more abundant than gold), and recycling rates can also affect the price.
Silver is one of the metals with a higher electrical conductivity than copper and gold, and is therefore widely used in industry, especially in sectors such as electronics and solar energy. Prices tend to rise when demand surges and fall when demand falls. Economic trends in the US, China and India can also contribute to price fluctuations. In the US and especially China, large industrial sectors use silver in various processes. In India, consumer demand for the precious metal for jewellery also plays an important role in pricing.
Silver prices tend to track the price of gold. When the price of gold rises, it is common for silver to follow suit due to their similar safe-haven status. The gold/silver ratio, which indicates the number of ounces of silver equivalent to the value of one ounce of gold, helps determine the relative valuation of both metals. Some investors may view a high ratio as an indicator that silver is undervalued or gold is overvalued. Conversely, a low ratio may suggest that gold is undervalued relative to silver.
