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Silver vs US Dollar (XAG/USD)

Trading Conditions:

Axi Symbol: XAGUSD

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3 Day Financing: Wednesday

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Pricing is indicative. Past performance is not a reliable indicator of future results. Client sentiment is provided for general information only, is historical in nature and is not intended to provide any form of trading or investment advice - it must not form the basis of your trading or investment decisions.

What is XAG/USD?

The XAG/USD currency pair represents the exchange rate between silver's ticker symbol (XAG) and the United States dollar (USD), or the number of USD required to purchase one troy ounce of silver. On the periodic table, the letter "X" represents "index," whereas "AG" is the symbol for silver.

Silver is a highly valued precious metal due to its lustre and diverse applications. Silver has been used for jewellery, currency, silverware, and numerous industrial purposes throughout history. Its supply is predominantly derived from global mining operations.

Much like its counterpart, gold, silver has a complex history as a form of currency and a store of value. Even though it is no longer as a legal tender in most countries, it still holds a special place in the financial world. Silver is valued by central banks and investors due to its stability and high return potential, particularly during times of economic uncertainty.

Silver's versatility makes it indispensable in many industries, including electronics, solar panels, water filtration, and medical equipment, thanks to its antimicrobial properties. Investors use silver to diversify their portfolios and hedge against economic risks, which can result in significant price fluctuations.

XAG/USD is frequently regarded as a safe-haven asset. During periods of economic turmoil, geopolitical tensions, or currency devaluation, silver tends to maintain or even increase in value. Consequently, it may be an attractive addition to portfolios seeking stability and growth potential.

What affects the price of XAG/USD?

The price of XAG/USD is subject to various influences, much like its gold counterpart. These factors revolve around the demand for silver by key industries:

  • Changes in industrial demand can have a substantial impact on silver prices.
  • Investors often turn to silver to diversify their portfolios, hedge against inflation, and capitalise on speculative opportunities. This investment demand can lead to substantial price movements in the silver market.
  • The increasing demand for silver jewellery, driven by various factors such as fashion trends and cultural traditions, has increased the market’s overall silver consumption. This upswing can be attributed to silver’s affordability, versatility, and timeless appeal.
  • Central banks also participate in the silver market by purchasing silver to diversify their holdings and as part of their foreign exchange reserves. As with gold, their buying and selling decisions can influence the price of silver.

In addition, the opportunity cost of holding silver is affected by alternative investments that yield interest or dividends, such as bonds or equities. Since silver does not generate income, rising interest rates can prompt investors to sell silver in favour of higher-yielding assets. While central banks are not required to disclose their silver holdings and transactions, doing so can affect market sentiment as it provides insight into the demand for silver and central banks' confidence in the metal.

Silver supply is predominantly derived from mining operations, central bank sales, and precious ore recycling, so supply fluctuations have a significant impact on XAG/USD prices. Silver, unlike some other commodities, can be utilised in a variety of industrial applications and may not be entirely recoverable through recycling processes. Consequently, the discovery of new silver deposits and fluctuations in mining output can impact silver prices.

Being a safe-haven asset, silver attracts investors during times of global instability, trade tensions, and economic turmoil. In times of rising inflation and falling interest rates, its tangibility and potential for preserving value make it particularly appealing. In contrast, a slowdown in Gross Domestic Product (GDP) growth may dampen industrial demand for silver, potentially leading to price declines.

The price of silver can also be influenced by market volatility. In contrast to the larger and more liquid gold market, the silver market is smaller, with fewer participants and lower trading volumes. Consequently, fluctuations in supply and demand can have a disproportionately large impact on silver prices.

Being denominated in US dollars, XAG/USD has an inverse relationship with the underlying currency. A stronger US dollar can have a negative effect on silver prices, whereas a weaker dollar typically leads to higher silver prices.

What to watch out for when trading XAG/USD?

When trading XAG/USD, it's essential for traders to closely monitor data releases and statements from influential organisations that can impact silver prices. These organisations include:

  • Major central banks worldwide, including the Federal Reserve, European Central Bank, and Bank of Japan, determine monetary policy decisions and interest rate changes.
  • US economic data, as XAG/USD is traded in USD releases such as non-farm payrolls, GDP growth, inflation indicators such as the Consumer Price Index (CPI), and manufacturing data, can influence the US dollar and silver prices.
  • Silver prices can be affected by production levels, exploration results, and financial performance updates from major silver mining companies.
  • Retail and wholesale jewellery, bullion, and precious metals associations can provide insight into tangible silver demand.
  • Organisation of the Petroleum Exporting Countries (OPEC), as crude prices and geopolitical events associated with oil production, can influence silver prices.
The data is sourced from third-party providers. This information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. It has been prepared without taking your objectives, financial situation, or needs into account. Any references to past performance and forecasts are not reliable indicators of future results. Axi makes no representation and assumes no liability regarding the accuracy and completeness of the content in this publication. Readers should seek their own advice.

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