Silver Price Forecast: XAG/USD holds losses below $33.50 due to fading safe-haven demand
- Silver price depreciates as easing US-EU trade tension diminishes the safe-haven demand.
- The safe-haven demand for Silver may revive due to growing concerns over US debt issues.
- The non-yielding Silver may attract buyers due to reduced opportunity cost amid lower long-term US yields.
Silver price (XAG/USD) loses ground after registering gains in the previous two sessions, trading around $33.40 per troy ounce during the Asian hours on Tuesday. The grey metal attracts sellers due to diminished safe-haven demand amid the easing trade tension between the United States (US) and the European Union (EU) improves the traders’ risk appetite.
Following Friday’s threat by Trump to impose a 50% tariff on imports from the European Union, the US President decided to extend the tariff deadline on the European Union (EU) after having a phone call with European Commission President Ursula von der Leyen on Sunday. On Monday, the EU agreed to accelerate negotiations with the United States (US) to avoid a transatlantic trade war.
However, the safe-haven Silver may regain its ground amid growing concerns over US debt issues ahead of Trump's “One Big Beautiful Bill” going through the Senate floor for Voting. The Bill is expected to raise the deficit by $3.8 billion, according to the Congressional Budget Office (CBO).
The Bill’s provisions, including tax cuts, spending increases, and raising the debt ceiling, could worsen US government finances and increase the risk of bond yields staying higher for longer. Higher bond yields can keep borrowing costs higher for consumers, businesses, and governments.
However, the long-term US yields continue to decline for the third successive session, with 10- and 30-year yields on US Treasury bonds standing at 4.48% and 5.0%, respectively, at the time of writing. The lower yields could drive the investors toward precious metals, including Silver, seeking better returns amid the reduced opportunity cost.
The weaker US Dollar (USD) could also support the Silver demand as dollar-denominated metal becomes cheaper for foreign buyers. Investors would likely await the release of the latest FOMC Minutes on Wednesday, followed by the PCE inflation data on Friday, seeking fresh impetus into the Federal Reserve’s (Fed) interest rate outlook.
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.