Silver (XAG) Forecast: Underpinned by Industrial Demand and Geopolitical Risks

Silver Inches Toward 12-Year High as Middle East Conflict Escalates

Silver prices are edging higher, hovering near a 12-year high of $32.72 on Wednesday, though gains are limited by a strengthening U.S. dollar. The ongoing conflict in the Middle East is adding uncertainty to the market, with traders closely monitoring how potential disruptions in oil supply might impact inflation and Federal Reserve policy. Crude oil prices have seen a significant uptick amid concerns of further escalation, with some traders speculating a rise to $100 per barrel. This inflationary pressure could challenge the Fed’s current monetary easing stance.

At 12:52 GMT, XAG/USD is trading $31.65, up $0.22 or +0.69%.

Industrial Demand Bolsters Silver Prices

Despite these headwinds, silver remains underpinned by strong demand from the industrial metals sector, which has been buoyed by recent stimulus measures from China. These measures aim to boost economic activity, providing additional support for industrial metals like silver. Saxo Bank noted that silver’s relative cheapness compared to gold positions it for potential gains, forecasting the metal could aim for $40 next year. The bank’s analysis highlights silver’s dual role as both a safe-haven asset and an industrial commodity, suggesting it could outperform gold in the coming months.

Silver Finds Support While Gold Faces Resistance as Dollar Strengthens

While silver has found support, gold has eased slightly after its recent rally, weighed down by a stronger U.S. dollar. The metal had surged earlier in the week as geopolitical tensions flared in the Middle East, but traders are now awaiting further clarity on U.S. interest rates. Kinesis Money analyst Carlo Alberto De Casa noted that while gold is experiencing short-term pressure, the broader environment remains favorable for the precious metal, particularly if the Federal Reserve signals further rate cuts.

The likelihood of a 50 basis point cut in November currently stands at 38%, with traders awaiting key data releases later this week, including the U.S. nonfarm payroll report. A weaker-than-expected jobs report could reinforce expectations for a Fed rate cut, boosting both gold and silver prices.

Geopolitical Tensions and Treasury Yields in Focus

Treasury yields have risen in response to geopolitical uncertainty and mixed U.S. economic data. The ISM Manufacturing PMI for September came in lower than expected at 47.2, reflecting continued economic softness. Investors are closely watching employment data for further signs of economic weakness, which could influence the Fed’s next move.

Meanwhile, rising tensions in the Middle East, particularly Iran’s ballistic missile attack on Israel, have added another layer of complexity to global markets. The possibility of a wider conflict in the oil-rich region is keeping traders on edge, with safe-haven assets like silver and gold likely to benefit from heightened geopolitical risks.

Market Forecast: Bullish Outlook for Silver

In the short term, silver is expected to remain supported by both industrial demand and geopolitical uncertainty. Should the conflict in the Middle East intensify and disrupt oil supplies, inflationary pressures could drive further gains for the metal. Additionally, if upcoming U.S. economic data suggests a slowdown, expectations for further Fed rate cuts could provide additional momentum. Given these factors, silver is likely to test its 12-year high and may target $33 in the coming weeks.