Silver falls below $61 as markets await Fed minutes
- Silver extends its correction and trades around $60.70 after last week's rebound.
- Rising US Treasury yields and uncertainty over the Fed are weighing on precious metals.
- Investors are now focused on the FOMC minutes due on Wednesday for fresh clues on the interest rate path.
Silver (XAG/USD) extends its decline for a second consecutive day on Tuesday, trading around $60.70 at the time of writing, down 2.21% on the day. The precious metal is giving back part of last week's gains as investors adopt a cautious stance ahead of the release of the Federal Reserve (Fed) meeting minutes.
Higher US Treasury yields continue to reduce the appeal of non-yielding assets, while the US Dollar (USD) remains broadly supported by expectations that the Fed will maintain a restrictive monetary policy. According to the CME FedWatch tool, markets largely expect the Fed to leave interest rates unchanged at its upcoming meeting, and expectations for a rate hike later this year have eased slightly following the latest US labor market data.
Recent US employment indicators continue to point to a gradual slowdown in the labor market. Job growth has recently fallen short of expectations, but the data has done little to alter the Fed's broader policy outlook. Fed of New York President John Williams said that labor market risks remain balanced and that inflation is still too high.
On the geopolitical front, tensions in the Middle East remain elevated. Reports of attacks on commercial vessels in the Strait of Hormuz continue to fuel concerns about global energy supplies. The situation is supporting Oil prices and reviving inflation concerns, a backdrop that is generally unfavorable for precious metals that are sensitive to interest rate expectations.
Investors will now turn their full attention to the Federal Open Market Committee (FOMC) meeting minutes due on Wednesday. The minutes could provide fresh insight into the future path of monetary policy and help determine the next directional move for Silver prices.
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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