Silver Price Forecast: Easing inflation pressure from cheaper oil lifts XAG/USD to near $53.00

Silver moves higher as oil retreats after Trump plays down the prospect of near-term military action against Iran.
A 78%+ probability of a December rate hike, indicated by CME FedWatch, poses a challenge for non-yielding XAG.
Silver's advance could be limited by a stronger Greenback as October Nonfarm Payrolls of 165K and a decline in unemployment to 4.1% support the currency.

Silver price (XAG/USD) recovers from two consecutive days of declines as lower oil prices ease inflationary pressures. During Monday's Asian trading hours, the metal is trading near $53.00 per troy ounce.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Oil retreated following comments from US President Donald Trump, who described further military strikes on Iran as "highly unlikely," as long as progress on Iran's nuclear programme continues and the Strait of Hormuz stays open. In Trump's assessment, the unpopular Middle East conflict and the higher energy costs it caused also played a part in the Republicans' recent midterm election losses.

According to Reuters, Trump reiterated in a telephone interview with CNN that further military action would probably not be needed if Iran signs a firm agreement. Although he had previously signalled that major attacks could resume after the midterms, the US has not launched any large-scale military operations. Iran, meanwhile, has warned that any future strikes would prompt retaliation against US and Israeli assets.

Expectations that the Federal Reserve (Fed) will raise rates in December could, however, weigh on non-yielding Silver. The likelihood of another 25-basis-point increase at the December Federal Open Market Committee (FOMC) meeting now exceeds 78%, according to the CME FedWatch tool.

The Greenback is drawing substantial support from strong US labour market data. October's Nonfarm Payrolls (NFP) rose by 165,000, well above the market forecast of 65,000 and following September's revised gain of 60,000. At the same time, the Unemployment Rate slipped to 4.1%, below the expected 4.2%. For further clues on the Fed's forthcoming policy decisions, traders are turning their attention to Tuesday's US Consumer Price Index (CPI) report and Friday's Producer Price Index (PPI).

Can US data and Fed speakers validate the accelerating Dollar repricing?

The US calendar will provide the first test of the recent change in Fed expectations and the accompanying Dollar weakness, according to strategists at ABN Amro. They observe that “three US events will test the repricing of Fed expectations and the USD’s downside risks today.” In their view, scheduled economic releases alongside Fed communication will be crucial in assessing whether markets have gone too far in reducing expectations for monetary tightening and factoring in further USD declines.

Common questions about Silver

What attracts investors to Silver?

Widely traded by investors, Silver is a precious metal with a long history as both a store of value and a means of exchange. While it attracts less interest than Gold, traders may choose Silver for portfolio diversification, its intrinsic value or its potential to hedge against periods of high inflation. Investment options include buying physical Silver as coins or bars, as well as gaining exposure through instruments such as Exchange Traded Funds that track its international market price.

What drives changes in Silver prices?

A broad set of influences can drive Silver prices. Its safe-haven appeal can push prices higher during geopolitical unrest or concerns over a severe recession, though this effect is generally weaker than for Gold. Lower interest rates also tend to support Silver because it pays no yield. Since the metal is quoted in US Dollars (USD) as XAG/USD, the currency's performance is another important influence: Dollar strength tends to restrain Silver prices, while weakness is likely to lift them. Investment demand, supply from mining – Silver is far more plentiful than Gold – and recycling rates can affect prices too.

Why does industrial demand matter for Silver prices?

With electrical conductivity among the highest of any metal, exceeding that of Copper and Gold, Silver has extensive industrial applications, notably in electronics and solar energy. Rising demand can lift prices, whereas weaker demand generally pulls them lower. Economic developments in the US, China and India can also drive price fluctuations. The large industrial sectors of the US and, especially, China rely on Silver for a range of processes. In India, consumer demand for Silver jewellery is also an important influence on prices.

How closely do Silver prices track Gold?

Gold's price direction generally provides a lead for Silver. A rise in Gold is usually accompanied by gains in Silver, reflecting their similar safe-haven characteristics. Investors may use the Gold/Silver ratio to assess the metals' relative valuations. This ratio measures how many ounces of Silver are required to match the value of one ounce of Gold. A high reading may be interpreted by some investors as a sign that Silver is undervalued or Gold is overvalued. A low reading, by contrast, could indicate that Gold is undervalued compared with Silver.