The price of silver (XAG/USD) fell to around $64.95 during Asian trading hours on Friday. The white metal is falling after hitting a record high in previous sessions as traders take profits. The potential downside for silver may be limited amid hopes for further cuts in US interest rates after signs of slowing US inflation.
New US economic data on Thursday showed inflation unexpectedly slowed in November. The US Consumer Price Index (CPI) fell to 2.7% year over year in November, according to the US Bureau of Labor Statistics (BLS). This reading was lower than expected at 3.1%. Meanwhile, the US core CPI, which excludes volatile food and energy prices, rose 2.6%, below market expectations of 3.0%. This number represents the slowest pace since 2021.
A decline in inflation in November could pave the way for the Federal Reserve to cut interest rates to help shore up the faltering labor market. This, in turn, could boost the price of silver in the near term. Lower interest rates can reduce the opportunity cost of holding silver, supporting the non-yielding precious metal.
In addition, rising tensions between the US and Venezuela could boost safe haven flows and support the white metal. The Venezuelan government has ordered its navy to escort ships carrying petroleum products from its port, according to the New York Times. This measure may escalate the risk of confrontation with the United States after Trump ordered a “siege” on the country’s oil industry.
Frequently asked questions about silver
Silver is a precious metal that is widely traded among investors. It has been used historically as a store of value and 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 periods of high inflation. Investors can buy physical silver, in the form of coins or bullion, or trade it through instruments such as exchange-traded funds, which track its price in international markets.
Silver prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession could cause the price of silver to rise due to its safe-haven status, although to a lesser extent than the price of gold. As a non-yielding asset, silver tends to rise as interest rates fall. Its movements 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, while a weak dollar is likely to push prices higher. Other factors such as investment demand, mining supplies – silver is more plentiful than gold – and recycling rates can also influence prices.
Silver is widely used in industry, especially in sectors such as electronics or solar energy, as it has one of the highest electrical conductivity of all metals – more than copper and gold. A rise in demand can cause prices to rise, while a fall tends to bring them down. Dynamics in the economies of the United States, China and India can also contribute to price fluctuations: for the United States, and especially China, its large industrial sectors use silver in various processes; In India, consumer demand for the precious metal used in jewelery also plays a major role in determining prices.
Silver prices tend to follow gold movements. When gold prices rise, silver usually follows suit, as its status as a safe haven asset is similar. The gold/silver ratio, which shows how many ounces of silver are needed to equal the value of one ounce of gold, may help determine the relative valuation between the two metals. Some investors may consider a high ratio to be an indication that silver is undervalued, or that gold is undervalued. Conversely, a low ratio may indicate that gold is undervalued compared to silver.
