Silver Rises as Lower Oil and Geopolitics Calm Inflation

Key Moments

Silver Benefits from Softer Oil and Lower Inflation Pressures

Silver prices (XAG/USD) edge higher after two consecutive declines, with the metal trading around $53.00 per troy ounce during Asian hours on Monday. The advance in Silver coincides with a pullback in crude oil prices, which has helped ease market concerns about inflation.

The retreat in oil followed comments from US President Donald Trump, who indicated that further military strikes on Iran are “highly unlikely,” provided there is continued progress on Iran’s nuclear program and the Strait of Hormuz remains open. Trump also remarked that the unpopular Middle East conflict, which had pushed up energy costs, played a role in the Republicans’ recent midterm election losses.

According to Reuters, Trump reiterated in a phone interview with CNN that additional military action would likely be avoided if Iran signs a firm agreement. Although he had previously suggested the possibility of resuming major attacks after the midterms, no large-scale US military operations have taken place. At the same time, Iran has warned that it will retaliate against any future strikes by targeting US and Israeli assets.

Rate-Hike Expectations Challenge Non-Yielding Silver

Despite the latest bounce, Silver faces headwinds from rising expectations of tighter US monetary policy. As a non-yielding asset, XAG remains vulnerable when interest-rate expectations firm.

Data from the CME FedWatch tool show that the implied probability of a 25-basis-point rate increase at the December Federal Open Market Committee (FOMC) meeting has climbed above 78%. A more hawkish outlook for the Federal Reserve tends to underpin the US Dollar, which can restrain further upside in dollar-denominated commodities such as Silver.

Strong US Labor Data Underpins the Dollar

Recent US economic data have lent additional support to the Greenback. October Nonfarm Payrolls (NFP) rose by 165,000, well above the market consensus of 65,000, and built on September’s revised reading of 60,000. The Unemployment Rate declined to 4.1%, better than expectations of 4.2%.

With the labor market showing resilience, market participants are focused on upcoming US inflation data for further clues about the Fed’s policy path. Traders are closely monitoring Tuesday’s US Consumer Price Index (CPI) release and Friday’s Producer Price Index (PPI) report for confirmation of the current rate trajectory and its implications for the US Dollar and precious metals.

Fed Communication and US Data Seen as Key Tests for Dollar Repricing

Strategists at ABN Amro emphasize that the recent shift in expectations for Federal Reserve policy and the associated weakness in the US Dollar will soon be tested by developments on the US calendar. They highlight that “three US events will test the repricing of Fed expectations and the USD’s downside risks today.”

They identify the combination of scheduled economic releases and commentary from Fed officials as pivotal in determining whether markets have gone too far in paring back tightening expectations and in pricing further downside for the US currency.

Silver as an Investment Asset

Silver is a widely traded precious metal among investors. It has historically served as both a store of value and a medium of exchange. While it is less prominent than Gold in many portfolios, market participants may choose Silver to diversify holdings, for its inherent value, or as a potential hedge during periods of elevated inflation. Investors can gain exposure through physical holdings in the form of coins or bars, or via instruments such as Exchange Traded Funds that track its price on global markets.

Key Drivers of Silver Prices

A broad range of factors can influence Silver prices. Periods of geopolitical tension or concerns about a deep recession can lift Silver due to its perceived safe-haven characteristics, though generally to a lesser degree than Gold. As a yieldless asset, Silver tends to benefit from lower interest rates.

Because Silver is quoted in US Dollars (XAG/USD), its performance is also closely tied to the Dollar’s moves. A strong Dollar typically weighs on Silver, while a weaker Dollar can support price gains. Other important drivers include investment demand, mining output – with Silver being significantly more abundant than Gold – and recycling activity.

Industrial Demand and the Gold Link

Silver plays a significant role in industrial applications, especially in sectors such as electronics and solar energy, due to its high electrical conductivity, which exceeds that of Copper and Gold. A rise in industrial demand can push prices higher, whereas weaker demand tends to have the opposite effect. Economic dynamics in the US, China, and India are also relevant: the US and China have large industrial bases that consume Silver in various processes, while in India, consumer demand for Silver jewelry is an important price driver.

Silver prices generally move in tandem with Gold. When Gold advances, Silver often follows, reflecting their similar safe-haven roles. The Gold/Silver ratio – which measures how many ounces of Silver are equivalent in value to one ounce of Gold – is commonly used to assess their relative valuation. Some investors may interpret a high ratio as a sign that Silver is undervalued or Gold is overvalued, while a low ratio can be seen as indicating that Gold is undervalued relative to Silver.