Silver Price Forecast: XAG/USD drops below $30.50 as Trump policies seem inflationary
- Silver price struggles as traders prepare for the upcoming Fed policy decision this Wednesday.
- Trump’s policies could lead the Fed to stay cautious, given that these policies are seen as inflationary.
- The dollar-denominated metals like Silver faces concerns about the recent rebound in the US Dollar.
Silver price (XAG/USD) has retraced its gains, trading around $30.30 per troy ounce during the Asian session on Monday. The non-interest-bearing metal faces challenges with the upcoming US Federal Reserve (Fed) policy decision this week. There is widespread anticipation that the Fed will maintain current interest rates, marking the first pause in the rate-cutting cycle that began in September.
The uncertainty surrounding US President Donald Trump's trade and immigration policies could prompt the Federal Reserve to remain cautious about cutting rates this year. Trump's policies are perceived as inflationary, which might lead the central bank to keep rates higher for a longer period, diminishing the appeal of Silver.
Additionally, concerns about the recent rebound in the US Dollar (USD) are pressuring the precious metals including Silver. The Greenback has regained some strength amid renewed tariff concerns after Trump announced plans to impose tariffs and sanctions on Colombia, following the country's refusal to allow US military planes carrying deported migrants.
However, in a surprising turn of events, the White House announced that Colombia has agreed to all terms, easing some of the tensions. Colombia's Foreign Minister confirmed that the "impasse with the US has been overcome."
The Wall Street Journal (WSJ) reported growing momentum among Trump's advisers to impose 25% tariffs on Mexico and Canada starting February 1. Trump's advisers are adamant about not waiting for negotiations or talks.
Silver FAQs
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.
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.
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.
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.