Silver Price Analysis: Impact of US Labor Data and Geopolitical Tensions
Recent Developments
- Silver price loses ground as recent solid US labor data could increase the odds for another Fed’s bumper rate cut.
- Richmond Fed President Barkin warned that the fight against inflation may not be over as risks persist.
- The safe-haven Silver could regain its ground following the rising geopolitical tensions in the Middle East.
Silver price (XAG/USD) retraces its gains recorded in the last two sessions, trading around $31.60 per troy ounce during the Asian hours on Thursday. This downside of the Silver price could be attributed to recent strong US labor data, which could increase the odds of the Federal Reserve (Fed) delivering another bumper rate cut in November. Lower interest rates reduce the opportunity cost of holding non-yielding assets like Silver, making it more appealing to investors.
US Labor Data Impact
The ADP US Employment Change reported an increase of 143,000 jobs in September, exceeding the anticipated 120,000 jobs. Furthermore, annual pay increased by 4.7% year-over-year. The total number of jobs added in August was revised upward from 99,000 to 103,000. This report indicates that the labor market is in better condition than previously perceived at the start of the third quarter.
Fed’s Perspective
Federal Reserve Bank of Richmond President Tom Barkin addressed the Fed’s recent rate actions on Wednesday, warning that the fight against inflation may not be over, as risks persist. Barkin noted that the 50 basis point rate cut in September was justified because rates had become “out of sync” with the decline in inflation, while the unemployment rate was near its sustainable level.
Geopolitical Tensions
However, the downside of safe-haven assets like Silver could be limited following the rising geopolitical tensions in the Middle East. The Israeli Broadcasting Authority (IBA) reported that Israel’s security cabinet has decided to issue a strong response to the recent Iranian attack. On Tuesday night, Iran launched over 200 ballistic missiles and drone strikes on Israel.
Silver FAQs
What is Silver?
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.
Factors Affecting Silver Prices
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.
Usage of Silver in Industry
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.
Relation to Gold and Relative Valuation
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.