Key Moments
- XAG/USD trades near $77.60 per troy ounce in Asian hours Thursday after only modest prior gains.
- Heightened tensions in the Strait of Hormuz and elevated energy prices keep inflation risks in focus.
- Reuters survey shows 56 of 103 economists expect the Fed to keep rates at 3.5%-3.75% at least through September.
Middle East Tensions Pressure Silver
Silver (XAG/USD) is trading under pressure around $77.60 per troy ounce during the Asian session on Thursday, giving back part of the modest advance seen in the prior day. The non-yielding metal is weighed down as investors remain focused on rising geopolitical uncertainty in the Middle East and the ongoing disruption in the Strait of Hormuz, which has kept energy markets tight and inflation risks elevated.
Market participants continue to monitor developments in the Strait of Hormuz, where Iran is tightening its control over maritime transit and targeting certain vessels. This backdrop has reinforced concerns about higher energy costs feeding into broader price pressures, dampening expectations for aggressive monetary easing by major central banks.
Escalation in the Strait of Hormuz
Iran is maintaining its stance over the Strait of Hormuz, imposing restrictions on passage and taking action against vessels in the area. Iranian parliament speaker and chief negotiator Mohammad Bagher Ghalibaf said that reopening the strait would be “impossible” while the United States (US) and Israel continue what he called “flagrant” ceasefire violations, including the US naval blockade.
At the same time, President Donald Trump stated that the existing truce would stay in effect indefinitely as Washington waits for a revised peace proposal from Tehran.
According to the Wall Street Journal, Iranian forces fired on three ships in the Strait of Hormuz and escorted two of them into Iranian waters on Wednesday. Iranian media reported that the paramilitary Revolutionary Guard was transporting the vessels to Iran, signaling a further escalation. However, White House press secretary Karoline Leavitt said the seizures did not violate the terms of the ceasefire.
Rates Outlook and Inflation Concerns
The persistent conflict backdrop and resulting jump in energy prices have contributed to a steady headwind for silver since the hostilities began. Higher energy costs have intensified worries about sustained inflation and reduced the likelihood of near-term rate cuts by central banks, pressuring non-interest-bearing assets such as silver.
A Reuters poll of economists indicated that 56 out of 103 respondents expect the Federal Reserve (Fed) to leave its policy rate unchanged in the current 3.5%-3.75% band at least through September. This outlook for a prolonged period of relatively higher rates has further undermined appetite for silver, which does not provide yield.
| Indicator | Detail |
|---|---|
| Current silver price (XAG/USD) | Around $77.60 per troy ounce during Asian hours on Thursday |
| Recent price behavior | Pullback after modest gains in the previous trading session |
| Fed policy rate expectation | 56 of 103 economists see rates held at 3.5%-3.75% at least through September |
Silver as an Investment Asset
Silver is a widely traded precious metal and has historically functioned as both a store of value and a medium of exchange. Although it attracts less attention than gold, investors often allocate to silver to diversify portfolios, benefit from its intrinsic value, or seek a potential hedge against periods of elevated inflation.
Market participants can gain exposure to silver through physical holdings, such as coins and bars, or via financial instruments like Exchange Traded Funds that track its performance in international markets.
Key Drivers of Silver Prices
Silver prices respond to multiple market forces. Periods of geopolitical stress or concerns about a severe economic downturn can support silver due to its role as a safe-haven asset, though typically to a lesser extent than gold.
As a yieldless asset, silver tends to benefit when interest rates move lower. Its pricing is also closely tied to the performance of the US Dollar (USD), as silver is quoted in dollars (XAG/USD). A firm USD generally caps silver’s upside, while dollar weakness can act as a tailwind.
Other structural factors include:
- Investment demand trends
- Mining output levels – silver is more abundant than gold
- Recycling flows into the market
Industrial Demand and Economic Cycles
Silver has extensive industrial applications, particularly in electronics and solar energy, supported by one of the highest electrical conductivities among metals, exceeding that of copper and gold. Shifts in industrial demand can significantly influence prices: robust demand tends to support higher prices, while softening demand usually exerts downward pressure.
Economic dynamics in the United States, China, and India also play a meaningful role. Large industrial sectors in the US and especially China use silver in various processes, while in India, consumer demand for silver jewelry contributes importantly to overall pricing trends.
Link Between Silver and Gold
Silver frequently moves in tandem with gold. When gold prices advance, silver tends to follow, reflecting their similar safe-haven characteristics. The Gold/Silver ratio – which indicates how many ounces of silver are required to equal the value of one ounce of gold – serves as a gauge of their relative valuation.
Some investors interpret a high Gold/Silver ratio as a sign that silver may be undervalued, or that gold might be overvalued. Conversely, a low ratio can be viewed as suggesting that gold is undervalued relative to silver.
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