Silver Price Forecast: XAG/USD falls to near $60.00 amid higher oil prices, US Dollar

Silver price, denoted as XAG/USD, continues to decline for the second day in a row, trading around $60.00 per troy ounce during Asian markets on Tuesday. The precious metal is facing challenges due to escalating oil prices, which have ignited inflation concerns and heightened expectations of additional Federal Reserve interest rate increases.

As interest rates climb, precious metals like Silver typically suffer, as they elevate the opportunity cost of holding non-income-generating assets. Moreover, ongoing geopolitical tensions continue to weigh on investor sentiment. Analysts are closely monitoring reports of the US potentially joining Saudi Arabia in its campaign against Iran-backed Houthi militants in Yemen.

Additionally, the recently announced Russia-Ukraine energy ceasefire, despite being violated, has further unsettled market sentiment. The US Dollar Index (DXY) is near a 18-month high ahead of crucial economic releases, leading investors to await key inflation reports such as the US Consumer Price Index (CPI) and Producer Price Index (PPI) on Wednesday and Thursday, respectively, to assess the Fed's policy trajectory.

According to the CME FedWatch Tool, there is an approximately 80% chance that the Fed will maintain rates unchanged this month, and an 88% probability of a rate hike in December. The Bank of Cleveland's President, Beth Hammack, has expressed a stronger-than-normal inclination toward tighter policy due to the need for higher interest rates to anchor inflation at 2% and address concerns about an entrenched inflationary mindset driven by neutral financial conditions and AI-driven demand pressures.

This stance signals a preference for incremental, modest rate adjustments to maintain a tight and responsive policy. Societe Generale analysts highlight Wednesday's US CPI release as the pivotal event for markets, predicting that a core inflation move to "2.5%" – the prevailing market consensus – is improbable to alter the current policy outlook.

They believe that such a print would leave little chance of any rate change this month but a strong likelihood of one in December and another in Q1. Silver, a valuable commodity, is widely traded by investors as a store of value and medium of exchange. While less popular than Gold, Silver may be sought by traders for portfolio diversification, intrinsic value, or as a hedge during high-inflation periods.

Investors can acquire Silver through physical means, such as coins or bars, or through Exchange Traded Funds that mirror its international market price. Silver prices are influenced by various factors, including geopolitical instability or recession fears that can boost its value as a safe-haven asset, albeit to a lesser extent than Gold.

As a non-yielding asset, Silver typically rises with lower interest rates and falls with higher rates. Its price also depends on the US Dollar, as Silver is priced in dollars (XAG/USD). A robust Dollar tends to suppress Silver prices, while a weak Dollar can lift them. Other factors, such as investment demand, mining supply, and recycling rates, can also impact Silver prices.

Silver is extensively utilized in industries like electronics and solar energy due to its exceptional electrical conductivity, surpassing that of Copper and Gold. Its price fluctuations are often influenced by demand shifts in major economies like the US, China, and India, where industrial sectors and consumer jewelry demand play significant roles in setting Silver prices.

Silver prices typically mirror Gold's movements. When Gold prices rise, Silver generally follows suit, as both are considered safe-haven assets. The Gold/Silver ratio, indicating the number of Silver ounces required to match the value of one Gold ounce, may aid in determining the relative valuation of both metals. Investors may view a high ratio as an indicator that Silver is undervalued or Gold is overvalued.

Conversely, a low ratio could suggest that Gold is undervalued relative to Silver. Akhtar Faruqui, a Forex Analyst based in New Delhi, India, focuses on delivering accurate and insightful Forex news and analysis.