$53.00 within reach: Silver price forecast as XAG/USD advances amid election shift and US Dollar weakness

Silver became more attractive as Democratic election wins fuelled hopes for peace with Iran and drove oil prices lower.
While cheaper energy could ease near-term inflation, robust private-sector hiring reinforced rate hike expectations.
Initial Jobless Claims and Nonfarm Payrolls are the next focus for investors assessing the Fed's policy outlook.

Silver (XAG/USD) trades near $53.10 per troy ounce. The metal is advancing for a second consecutive day during Thursday's Asian session. Democratic wins in the US midterm elections lifted hopes of an end to the US-Iran conflict, sending oil prices sharply lower and supporting Silver.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

A softer US Dollar (USD) and lower Treasury yields added to the appeal of the dollar-priced, non-yielding metal. Acknowledging that the war had cost Republicans the election, President Donald Trump pointed to high petrol prices as a major reason for the defeat. He also indicated that there were no immediate plans to intensify attacks on Iran.

Cheaper oil could reduce inflationary pressure and allay concerns over near-term interest rate increases. Yet resilient domestic data continued to underpin expectations of a Federal Reserve rate hike. October private-sector hiring increased by 86,000, according to the ADP employment report, exceeding the 69,000 forecast. September's reading was revised down from 90,000 to 86,000. The ISM Services PMI, meanwhile, eased from 54.9 to 54.5. Although just below the 54.8 forecast, it remained firmly in expansion territory.

Markets assign nearly an 82% probability to another rate hike in December, according to the CME FedWatch Tool. The strong US indicators continue to sustain hawkish expectations for Federal Reserve (Fed) monetary policy. Attention now shifts to Thursday's weekly US Initial Jobless Claims and Friday's Nonfarm Payrolls report.

100 Fair Value Estimate Leaves DXY Rich After Post-Election Retreat

The broader DXY index still looks expensive against Scotiabank's valuation framework, its analysts reaffirm, despite the US Dollar's post-election decline. They “continue to highlight the DXY’s premium to our FV estimate based on 2Y spreads, which is closer to 100 (vs. spot in the mid-101s),” reinforcing their assessment that the Dollar remains above fair value following its recent weakness across G10 FX.

Silver: Key Questions

Silver's Investment Appeal

Investors trade Silver extensively as a precious metal with a long history as both a store of value and a means of exchange. It attracts less interest than Gold, but traders may choose it for portfolio diversification, its intrinsic value or its potential to hedge against high inflation. Exposure can take the form of physical coins and bars or instruments such as exchange-traded funds, which track Silver's price in international markets.

Key Drivers of Silver Prices

A broad set of influences shapes Silver prices. Its safe-haven role can drive gains during geopolitical turmoil or fears of a severe recession, though the effect is typically weaker than for Gold. Lower interest rates generally support Silver because it pays no yield. The US Dollar (USD) is another key influence: Silver is quoted in dollars (XAG/USD), so a stronger currency tends to restrain prices, while a weaker one is likely to lift them. Investment demand, recycling rates and mine supply also matter. Silver is considerably more abundant than Gold.

Industrial Demand and Silver Prices

With electrical conductivity among the highest of all metals, exceeding both Copper and Gold, Silver has extensive industrial applications, notably in electronics and solar energy. Rising demand can push prices higher; falling demand generally has the opposite effect. Economic conditions in the US, China and India can also generate price fluctuations. Large industrial sectors in the US and especially China consume Silver across multiple processes, while Indian consumer demand for Silver jewellery is another important price driver.

Silver's Relationship With Gold

Gold's price movements often set the direction for Silver. Their similar safe-haven status means that gains in Gold are typically accompanied by gains in Silver. Relative valuations can be assessed using the Gold/Silver ratio, which measures how many ounces of Silver equal the value of one ounce of Gold. A high ratio may signal to some investors that Silver is undervalued or Gold overvalued. A low reading, by contrast, may indicate that Gold is undervalued against Silver.