Silver price declines as hot US inflation bolsters Dollar despite industrial support
- Hotter-than-expected US inflation supports the US Dollar and weighs on Silver on Tuesday.
- Geopolitical concerns surrounding tensions between the US and Iran continue to support precious metals.
- Commerzbank and OCBC highlight support from industrial demand and persistent risks of high volatility in the Silver market.
Silver (XAG/USD) declines on Tuesday, stalling a four-day winning streak, the white metal trading around $84.10 at the time of writing, down 2.18% on the day. The pullback comes as the US Dollar (USD) benefits from renewed demand following stronger-than-expected US inflation data, which is also pushing US Treasury yields higher.
The Bureau of Labor Statistics (BLS) reported that inflation, as measured by the Consumer Price Index (CPI), accelerated to 3.8% YoY in April from 3.3% previously, above market expectations of 3.7%. On a monthly basis, the index rose 0.6%, in line with forecasts. Core inflation, which excludes food and energy prices, increased to 2.8% YoY from 2.6% previously, also exceeding expectations of 2.7%.
The BLS noted that “the index for energy rose 3.8 percent in April, accounting for over 40 percent of the monthly all items increase.” Shelter and food costs also increased, reinforcing concerns about persistent inflationary pressures in the United States (US).
Meanwhile, the ADP report showed that US private employers added an average of 33K jobs per week over the four weeks ending April 25, slightly above the previous reading, suggesting a modest improvement in labor market momentum.
Against this backdrop, the US Dollar Index (DXY) rises toward 98.30 following the release, as investors assess that the Federal Reserve (Fed) may keep interest rates higher for longer. A prolonged high-interest-rate environment generally reduces the appeal of non-yielding assets such as Silver.
The Greenback continues to benefit also from support linked to geopolitical tensions. Concerns surrounding the Middle East remain elevated after US President Donald Trump stated that the US-Iran ceasefire was “on life support.” According to CNN, several members of his administration are reportedly considering the possibility of resuming major military operations more seriously.
However, Commerzbank highlighted that Silver remains supported by the strength of industrial metals. The bank noted that the metal recently reached a two-month high near $87 per troy ounce, driven by gains in the London Metal Exchange index and concerns over potential production disruptions in Peru linked to an energy crisis.
Meanwhile, OCBC stated that the recent Silver rally has been driven by momentum, short-covering and expectations of a possible easing in trade tensions between the United States (US) and China. The bank also pointed out that the Silver Institute projects a sixth consecutive annual market deficit this year, reinforcing the narrative of structural supply tightness.
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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