• Lower oil prices support Silver after Trump plays down the prospect of near-term military action against Iran.
• A 78%+ probability of a December rate increase, according to CME FedWatch, weighs on non-yielding XAG.
• October’s strong Nonfarm Payrolls reading (165K) and lower unemployment (4.1%) could support the Greenback and limit Silver’s gains.

At around $53.00 per troy ounce in Monday’s Asian session, Silver (XAG/USD) is recovering after two consecutive days of declines. Lower oil prices have eased inflationary pressures, supporting the metal’s advance.

US President Donald Trump’s remarks that further strikes against Iran are “highly unlikely,” as long as progress on Iran’s nuclear programme continues and the Strait of Hormuz stays open, prompted a fall in crude prices. He also attributed the Republicans’ recent midterm election losses in part to the unpopular Middle East conflict and the higher energy costs it caused.

According to Reuters, Trump reiterated in a telephone interview with CNN that further military action would probably not be needed if Iran signs a firm agreement. No large-scale US military operations have taken place, despite previous suggestions that major attacks might resume after the midterms. Iran, meanwhile, has threatened to respond to any future strikes by attacking US and Israeli assets.

Expectations that the Federal Reserve (Fed) will raise rates in December could, however, weigh on non-yielding Silver. The CME FedWatch tool puts the likelihood of another 25-basis-point increase at the December Federal Open Market Committee (FOMC) meeting at above 78%.

Strong US labour market data are lending considerable support to the Greenback. October Nonfarm Payrolls (NFP) rose by 165,000, well above the 65,000 market forecast and following September’s revised increase of 60,000. The Unemployment Rate also slipped to 4.1%, below the expected 4.2%. For further clues to the Fed’s next policy decisions, traders are turning their attention to Tuesday’s US Consumer Price Index (CPI) release and Friday’s Producer Price Index (PPI) report.

Dollar repricing accelerates as markets turn to US data and Fed speakers

The US calendar will provide the next test of the recent change in Fed expectations and the accompanying Dollar weakness, according to strategists at ABN Amro. They note that “three US events will test the repricing of Fed expectations and the USD’s downside risks today.” In their view, scheduled economic releases alongside Fed communication will be crucial in assessing whether markets have gone too far in reducing expectations of tightening and pricing in further USD declines.

Silver: Frequently Asked Questions

Widely traded by investors, Silver is a precious metal with a long history as both a store of value and a means of exchange. Gold remains more popular, but traders may choose Silver for its intrinsic value, to diversify a portfolio or as a possible hedge when inflation is high. Exposure is available through purchases of physical coins or bars, or through instruments such as exchange-traded funds that track Silver’s price in international markets.

A broad range of influences can drive movements in Silver. Its safe-haven appeal can lift prices during geopolitical turmoil or concerns about a severe recession, though the effect is generally smaller than for Gold. Lower interest rates typically favour Silver because it pays no yield. The US Dollar (USD) is another important influence, since the metal is quoted in dollars (XAG/USD): a stronger Dollar generally restrains Silver prices, while a weaker currency is likely to lift them. Investment demand, recycling rates and mine supply also play a part, with Silver far more abundant than Gold.

Among metals, Silver has one of the highest levels of electrical conductivity, exceeding both Copper and Gold. This makes it widely used in industry, notably in electronics and solar energy. A sharp increase in demand can push prices higher, whereas weaker demand tends to bring them down. Developments in the US, Chinese and Indian economies can also drive price fluctuations. Large industrial sectors in the US and, particularly, China use Silver in a range of processes, while Indian consumers’ demand for Silver jewellery is another important influence on prices.

Gold’s price movements are often mirrored by Silver. As both metals have a similar safe-haven status, a rise in Gold is usually accompanied by gains in Silver. Their relative valuations can be assessed using the Gold/Silver ratio, which measures how many ounces of Silver have the same value as one ounce of Gold. A high ratio may be interpreted by some investors as a sign that Silver is undervalued or Gold overvalued. A low ratio, by contrast, could indicate that Gold is undervalued compared with Silver.