In the Asian trading session on Thursday, silver prices saw a significant correction, dropping nearly 6% to hover around $86.50. This decline followed the metal's peak at $93.51 on Wednesday. The drop came in the wake of US President Donald Trump's announcement that Iran had committed to halt the execution of protesters and had no intentions of conducting large-scale executions, which diminished the safe-haven appeal of silver.
Despite the easing tensions, market sentiment remained cautious as Trump issued warnings of potential military actions against Iran's government led by Supreme Leader Ayatollah Ali Khamenei. However, Iran's pledge to end civilian executions has somewhat reduced the probability of such US military interventions.
Additionally, the Federal Reserve's anticipated decision to maintain current interest rates at its upcoming policy meeting has exerted further downward pressure on silver. This expectation grew stronger following the recent US Consumer Price Index (CPI) data release, which indicated persistent inflationary pressures.
Looking ahead, a critical factor for silver prices will be the announcement of the new Federal Reserve Chair by the White House. President Trump, who has indicated that he will reveal Jerome Powell's successor in January, has hinted that key contenders include White House Economic Adviser Kevin Hassett, former Fed Chair Kevin Warsh, and current Fed Governors Christopher Waller and Michelle Bowman.
From a technical perspective, XAG/USD has retreated sharply to near $88.50 at the time of writing. The 20-day Exponential Moving Average (EMA) is positioned at $77.48, supporting an upward trend as the price remains above this level. The positive slope of the EMA suggests a continued bullish bias, with pullbacks likely limited around this average. The 14-day Relative Strength Index (RSI) stands at 68, indicating strong momentum, though it may cap immediate gains if it stalls.
If the pair remains above the rising 20-EMA, the bullish trend should persist. A close below this level could signal a consolidation phase, potentially leading to a decline towards the January 8 low of $73.85.
Why Invest in Silver? Silver is a sought-after commodity among investors due to its historical role as a store of value and medium of exchange. While it may not be as popular as gold, silver is often used to diversify investment portfolios, capitalize on its intrinsic value, or hedge against inflation. Investors can purchase silver in physical forms such as coins and bars or engage in trading through Exchange Traded Funds (ETFs) that track its market price.
Factors Influencing Silver Prices Silver prices are affected by a variety of factors. Geopolitical tensions and recession fears can boost silver prices due to its safe-haven status, albeit to a lesser extent than gold. As a non-yielding asset, silver tends to appreciate when interest rates decline. Additionally, its price is influenced by the strength of the US dollar, given that silver is priced in USD. A strong dollar usually suppresses silver prices, while a weaker dollar tends to elevate them. Other influences include investment demand, mining output, and recycling rates.
Industrial Demand's Impact on Silver Prices Silver's industrial applications, particularly in electronics and solar energy sectors, play a significant role in its pricing. A rise in industrial demand can drive prices upward, while a fall can have the opposite effect. Economic dynamics in the US, China, and India also contribute to price fluctuations, as these countries have substantial industrial sectors that utilize silver. In India, silver's demand in jewelry further influences its market price.
Correlation with Gold Prices Silver prices often mirror gold's movements due to their similar roles as safe-haven assets. The Gold/Silver ratio, indicating how many ounces of silver are needed to match the value of one ounce of gold, can provide insights into their relative valuations. A high ratio might suggest that silver is undervalued or gold is overvalued, while a low ratio could imply the opposite.