Silver Price Forecast: XAG/USD slips below $64.00 on profit taking

Silver price (XAG/USD) continues to decline for the second day in a row, trading near $63.50 per troy ounce during Asian trading hours on Friday. Investors are taking profits amid concerns over the Federal Reserve's (Fed) monetary policy and ongoing Middle East geopolitical tensions. Inflation data also played a role, with the Bureau of Labor Statistics reporting that US wholesale prices remained flat in July, softer than expected growth of 0.2%.

Core Producer Price Index (PPI) figures were also weaker than anticipated, rising 0.2% year-over-year compared to the 0.3% consensus estimate. The softer inflation numbers have led market participants to reassess their expectations for Federal Reserve interest rate policy. The probability of a rate hike at the Fed's September meeting has fallen to 34.8%, down from 40% after the PPI release.

Meanwhile, diplomatic efforts to reopen the Strait of Hormuz have remained stalled, causing investors to worry about potential higher energy costs and renewed inflationary pressures. TD Securities noted that silver stands out for near-term CTA flows, with prices above $66.80/oz likely to attract further buying. Systematic demand for silver appears strong, with commodity trading advisers planning to add 3-4% of their historic maximum allocation into the next week, regardless of price scenarios.

Historically used as a store of value and medium of exchange, silver's price is influenced by a variety of factors. Geopolitical instability or recession fears can drive silver prices up, though less so than gold. With no yield, silver typically benefits from lower interest rates, and its movements are also impacted by the US Dollar (USD).

A weaker dollar tends to boost silver prices, while a stronger dollar can keep silver prices stable. Industry demand, particularly in electronics and solar energy, also impacts silver prices, as silver has excellent electrical conductivity. The Gold/Silver ratio, which indicates the number of silver ounces needed to equal one gold ounce, may help investors determine the relative value of the two metals.