In the years of the first trade war, silver faced issues due to supply chain disruptions and a slowdown in industry. Will the events from 7 years ago repeat? Let’s discuss it and make a trading plan for XAGUSD.
The article covers the following subjects:
Major Takeaways
- Silver generally outperforms gold during rallies.
- The white metal is more sensitive to tariffs.
- Risk premium on the U.S. stock market impacts XAGUSD.
- The failure of silver to break above $32.4 and $33.4 is a sell signal.
Monthly Fundamental Forecast for Silver
Silver takes its time to pick up pace but moves quickly once it does. After Donald Trump’s inauguration, the Gold/Silver ratio skyrocketed to its highest levels since February 2024. However, it later dropped to its average values, clearly showing silver’s potential to lead the sector. Since the start of the year, XAGUSD has risen by 12%, outperforming the 9% rally of XAUUSD.
Silver’s connection to the White House’s policies is not accidental. The metal is highly sensitive to the state of industrial production and business activity in the U.S. manufacturing sector. These sectors were hit hardest during Trump’s first trade war: when tariffs were introduced in 2018, XAGUSD prices fell. If history teaches us anything, traders should be prepared for the negative impact tariffs may have on precious metals.
Silver Dynamics and U.S. Manufacturing PMI
Source: Trading Economics.
It’s no surprise that Republican tariff threats had a greater impact on silver than on gold, while the delay granted to Mexico and Canada allowed XAGUSD to recover its position. The key issue lies in the significant role silver plays in industry. Import tariffs will disrupt supply chains and cause major problems, as seen during the pandemic when silver dropped sharply.
Silver’s dual role as both an investment tool and an industrial commodity links it to other commodities markets. According to StoneX research, during inflationary periods, silver is more closely related to gold, and during non-inflationary periods, it’s more linked to copper. No surprise that XAUUSD and XAGUSD are moving in tandem right now. The U.S. PCE is still well above the target, and silver tends to outperform gold during periods of rapid precious metal rallies.
Gold/Silver Trends
Source: Trading Economics.
As an investment tool, silver is also connected to the stock market. Societe Generale points out that the risk premium on U.S. stocks has dropped below 3%. This event has only occurred three times since 1990, and whenever it did, precious metals grew rapidly. Silver led these rallies. When the risk premium normalized, XAGUSD prices tended to jump by an average of 12%, and XAUUSD by 6% annually.
Silver Trading Plan for the Month
The markets have become overly focused on the idea that Trump’s tariffs are just a way to negotiate. The U.S. president will not back down from his ideas, which creates conditions for selling silver if it fails to break above $32.4 and $33.4 per ounce. A more conservative strategy would involve buying XAUUSD while simultaneously selling XAGUSD if tariff threats resume. Targets for the Gold/Silver ratio are near 90.75 and 92.5.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance broker. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2014/65/EU.
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