Factors That Could Drive Silver Markets in the Near Term

Now that the Easter holiday is behind us, many investors are wondering which price direction silver is going to take over the coming weeks. Such a query is valid given the somewhat erratic way in which the price of this metal has been moving lately. We explore some of the drivers that are exerting an influence on silver prices and could continue to do so.

The ongoing war in the Middle East is exerting pressure on silver prices. During such uncertainty, investors tend to prefer assets that provide safety to their resources, and the USD is currently firm because of this reason. As more investors acquire dollars, silver prices get depressed as demand for the metal reduces.

Another factor weighing on silver prices is the uncertainty surrounding interest rate cuts. The disruptions to the energy markets have raised fears of resurgent inflation and these concerns are making central banks like the Fed reluctant to ease borrowing rates too soon. As borrowing rates remain elevated, pressure is exerted on silver prices because investors keep their money in asset classes that give them a return. Silver is non-yielding.

On the plus side, demand for silver is strong and is even growing in a number of industries, such as clean energy, AI and electronics. This growing demand is helping to support the price of this metal, and further support is coming from central banks that are accumulating the metal. The long-term outlook is therefore favorable for the metal.

So, why are prices choppy? Many investors may be confused by the significant rallies that are quickly followed by sharp corrections in the price of silver. This occurrence is actually expected at a time like this for several reasons.

First, times of geopolitical turmoil make markets very sensitive to news headlines. For example, when Trump issues a 48-hour deadline for Hormuz to be reopened or energy infrastructure in Iran will be attacked, markets respond strongly. You can therefore expect prices to move strongly if Iran is defiant and its energy infrastructure is attacked. Conversely, markets are also likely to move strongly if Iran bows to the pressure and reopens the strait.

There is a potent mix of factors currently influencing the price of silver and any change to one of those factors is likely to have an outsized effect on prices. Everything is in flux, so it is advisable to keep a close eye on things and avoid making a rash decision. For entities like New Pacific Metals Corp. (NYSE American: NEWP) (TSX: NUAG) with a longer term view on things, the current swings in prices may not cause significant alarm.

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