Silver extends losses as hawkish Fed, ceasefire curb demand
- Silver posts a third consecutive daily decline and remains on track for a notable weekly loss.
- Markets continue to strengthen expectations for higher US interest rates following the Fed’s latest meeting.
- Optimism surrounding a ceasefire between Israel and Hezbollah limits demand for safe-haven assets.
Silver (XAG/USD) trades around $64.85 on Friday at the time of writing, down 1.31% on the day. The white metal remains under pressure for a third consecutive day as investors reassess the outlook for US monetary policy and developments in the Middle East.
Market sentiment continues to be influenced by the hawkish tone adopted by the Federal Reserve (Fed) this week. At its June meeting, the US central bank left interest rates unchanged but signaled that several policymakers still support an additional rate hike before year-end. This stance has led traders to reinforce expectations for higher interest rates for longer, reducing the appeal of non-yielding assets such as Silver.
According to the CME FedWatch tool, markets are now assigning a high chance to a rate hike in the coming months. Newly appointed Fed Chair Kevin Warsh also reiterated the central bank’s commitment to returning inflation to its 2% target, adding to expectations of a more restrictive monetary policy stance.
On the geopolitical front, the traditional safe-haven support for precious metals has weakened after Reuters reported that Israel and Hezbollah agreed to a ceasefire starting Friday afternoon. The development has helped improve risk appetite and reduced defensive demand for Silver.
Inflation concerns also remain in focus due to volatility in energy prices and risks surrounding global Oil supply. However, these factors have not been sufficient to offset the negative impact of expectations for tighter US monetary policy.
Silver therefore remains biased to the downside in the near term, with investors closely monitoring upcoming US economic data and any signals that could either confirm or challenge expectations of further Federal Reserve tightening.
Silver FAQs
Silver is a precious metal highly traded among investors. It has been historically used as a store of value and a medium of exchange. Although less popular than Gold, traders may turn to Silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during high-inflation periods. Investors can buy physical Silver, in coins or in bars, or trade it through vehicles such as Exchange Traded Funds, which track its price on international markets.
Silver prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can make Silver price escalate due to its safe-haven status, although to a lesser extent than Gold's. As a yieldless asset, Silver tends to rise with lower interest rates. Its moves also depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong Dollar tends to keep the price of Silver at bay, whereas a weaker Dollar is likely to propel prices up. Other factors such as investment demand, mining supply – Silver is much more abundant than Gold – and recycling rates can also affect prices.
Silver is widely used in industry, particularly in sectors such as electronics or solar energy, as it has one of the highest electric conductivity of all metals – more than Copper and Gold. A surge in demand can increase prices, while a decline tends to lower them. Dynamics in the US, Chinese and Indian economies can also contribute to price swings: for the US and particularly China, their big industrial sectors use Silver in various processes; in India, consumers’ demand for the precious metal for jewellery also plays a key role in setting prices.
Silver prices tend to follow Gold's moves. When Gold prices rise, Silver typically follows suit, as their status as safe-haven assets is similar. The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, may help to determine the relative valuation between both metals. Some investors may consider a high ratio as an indicator that Silver is undervalued, or Gold is overvalued. On the contrary, a low ratio might suggest that Gold is undervalued relative to Silver.
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