Silver Price Forecast: XAG/USD slips below $69.00 ahead of Fed Chair speech

Silver price (XAG/USD) depreciates after registering modest gains in the previous day, trading around $68.80 per troy ounce during the Asian hours on Friday. Silver price drops as investors adopt a cautious stance ahead of Federal Reserve (Fed) Chair Kevin Warshs upcoming speech at the annual Jackson Hole symposium, where markets hope to gain clarity on the future direction of US interest rates.

The white metal's decline comes on the heels of stronger-than-expected US inflation data released earlier this week. The higher inflation figures have reinforced market expectations of another interest rate hike before the end of the year, with the CME FedWatch Tool currently pointing to a 74% probability of a rate increase in December. Conversely, traders anticipate the central bank will stand pat at its immediate September meeting, pricing in a 65% chance that rates will stay put for now.

Despite these near-term rate pressures, Silver could find underlying support from the ongoing “debasement trade.” Concerns surrounding a potential US debt crisis and long-term weakness in the US Dollar continue to grow, fueled in part by the US Treasurys recent expansion of its debt buyback program.

According to TD Securities, trend-following flows remain supportive across the complex, with “CTA positioning in precious metals” still “hold[ing] firm.” The bank notes that “silver and platinum pricing simulations” in particular are “highlighting an increased likelihood of additional buying,” underscoring steady systematic demand for these metals into the near term.

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.