Silver Price Forecast: XAG/USD pulls back from $29.50 after easing of Middle-East tensions

• Silver price edges lower due to the de-escalation of the geopolitical tensions in the Middle East.

• US Secretary of State Antony Blinken announced that Israel had agreed to a proposal for a Gaza ceasefire.

• Fed President Neel Kashkari indicated that discussing potential US rate cuts in September is warranted.

Silver price (XAG/USD) price breaks its three-day winning streak, trading around $29.30 per troy ounce during the Asian session on Tuesday. The downside of the safe-haven Silver could be attributed to de-escalation of the geopolitical tensions in the Middle East.

On Monday, US Secretary of State Antony Blinken announced that Israel had agreed to a proposal to resolve the issues delaying a Gaza ceasefire and urged Hamas to follow suit. However, Hamas senior official Osama Hamdan criticized Blinken's statement that Israeli Prime Minister Benjamin Netanyahu had accepted an updated proposal. Hamdan claimed it "raises many ambiguities" and is "not what was presented to us nor what we agreed on."

Hamdan also stated that Hamas has already informed mediators that they are not seeking new negotiations but rather an agreement on an implementation mechanism for the ceasefire, per  Reuters.

Traders are eagerly anticipating Federal Reserve Chair Jerome Powell's speech at Jackson Hole on Friday, looking for clues about the potential size of the US central bank’s expected rate cut in September.

Meanwhile, markets are continuing to price in a total of 100 basis points of rate cuts for this year. Lower interest rates could boost the demand for non-yielding assets such as Silver.

On Monday, Minneapolis Fed President Neel Kashkari suggested that it would be appropriate to consider potential US interest rate cuts in September, citing concerns about a weakening labor market, according to Reuters.

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.