Silver Price Forecast: XAG/USD holds position near $29.00 with a positive bias

• Silver price could advance further due to dovish sentiment surrounding the Fed’s policy outlook.

• The safe-haven Silver received support from the escalated geopolitical tensions in the Middle East.

• Iranian Supreme Leader Ali Khamenei has called for a direct retaliation against Israel following the assassination of Hamas leader.

Silver price retraces its recent gains, trading around $28.90 per troy ounce during the Asian hours on Thursday. However, the price of the grey metal gained ground due to the dovish sentiment surrounding the Federal Reserve’s (Fed) policy trajectory. Fed decided to keep rates unchanged in the 5.25%-5.50% range at its July meeting on Wednesday. Lower interest rates would drive the appeal of the non-yielding assets like Silver higher.

During a press conference after post interest rate decision, Federal Reserve Chair Jerome Powell stated that a rate cut in September is "on the table." Powell added that the central bank will closely monitor the labor market and remain vigilant for signs of a potential sharp downturn, per Reuters.

US ADP Employment Change rose 122,000 in July and annual pay was up 4.8% year-over-year, data reported on Wednesday. This reading followed the 155,000 increase (revised from 150,000) recorded in June and came in below the market expectation of 150,000. Traders will look for further direction from the US economic data including ISM Manufacturing PMI and weekly Initial Jobless Claims, which are scheduled for release later on Thursday.

Safe-haven Silver has also gained support due to heightened geopolitical tensions following the assassination of Hamas leader Ismail Haniyeh in Iran. According to the New York Times on Wednesday, Haniyeh was killed in Iran's capital after attending the new president's inauguration. Both Iranian officials and Hamas have accused Israel of being behind the strike. In response, Iranian Supreme Leader Ali Khamenei has reportedly called for a direct retaliation against Israel.

Silver FAQs

Why do people invest in Silver?

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.

Which factors influence Silver prices?

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.

How does industrial demand affect Silver 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.

How do Silver prices react to Gold’s moves?

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.