- The downward trend in silver prices could be slowed due to increasing tensions in the Middle East.
- The BBC reported on Tuesday that the US has deployed a guided missile submarine in the Middle East.
- Lower-than-expected US producer price index data have reduced the likelihood of a deeper interest rate cut by the Fed in September.
Silver (XAG/USD) continued its losses for the second day in a row, trading around $27.70 per troy ounce during the Asian session on Wednesday. This downtrend in the safe-haven silver could be attributed to improved risk appetite despite rising geopolitical tensions in the Middle East.
The BBC reported on Tuesday that the United States had sent a guided missile submarine to the Middle East. Israeli forces also continued operations near the southern Gaza town of Khan Younis on Monday. CBC News quoted Palestinian medics as saying that at least 18 people were killed in Israeli military strikes on Khan Younis on Monday.
The downbeat Producer Price Index (PPI) data from the US has reduced expectations of a deeper rate cut by the US Federal Reserve (Fed) in September. In addition, traders are likely to watch the US CPI inflation report on Wednesday, which could offer some clues about the Federal Reserve’s (Fed) rate cutting path.
The US Producer Price Index (PPI) rose 2.2% in July from the same period last year (up from 2.7% in June), falling short of market expectations of 2.3%. At the same time, the PPI rose 0.1% month-on-month, after rising 0.2% in June. The core PPI rose 2.4% year-on-year in July (up from the previous reading of 3.0%). The index fell short of expectations of 2.7%. The core PPI remained unchanged.
On Tuesday, Atlanta Fed President Raphael Bostic said recent economic data had boosted his confidence that the Fed could meet its 2% inflation target. But Bostic suggested more evidence was needed before he would support a rate cut, according to Reuters.
Frequently asked questions about silver
Silver is a precious metal that is widely traded among investors. It has historically been used as a store of value and a medium of exchange. Although it is less popular than gold, traders can turn to silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge in times of high inflation. Investors can buy physical silver in coins or bars, or trade it through instruments such as exchange-traded funds that track its price on international markets.
The price of silver can change based on a variety of factors. Geopolitical instability or fear of a severe recession can drive up the price of silver due to its safe-haven status, although to a lesser extent than gold. As a non-yielding investment, silver tends to rise when interest rates are lower. Its movements also depend on how the U.S. dollar (USD) behaves, as the asset is valued in dollars (XAG/USD). A strong dollar tends to keep the price of silver in check, while a weaker dollar is likely to drive prices higher. Other factors such as investment demand, mining supply—silver is much more common than gold—and recycling rates can also affect prices.
Silver is widely used in industry, especially in areas such as electronics or solar energy, because it has one of the highest electrical conductivities of any metal – higher than copper and gold. A surge in demand can raise prices, while a decline tends to lower them. The dynamics of the US, Chinese and Indian economies can also contribute to price fluctuations: in the US and especially in China, silver is used in various processes in major industries; in India, consumer demand for the precious metal for jewelry also plays an important role in pricing.
Silver prices tend to follow the movements of gold prices. When gold prices rise, silver usually follows the trend as they share a similar status as safe haven assets. The gold/silver ratio, which indicates the number of ounces of silver required to equal the value of one ounce of gold, can help determine the relative value of both metals. Some investors consider a high ratio to be an indicator that silver is undervalued or gold is overvalued. On the contrary, a low ratio could indicate that gold is undervalued compared to silver.
