Silver dips after record high as US-China trade tensions, Fed outlook loom
- Silver slips toward $51.75 after recently hitting record high near $54.
- Escalating trade tensions between the US and China fuel uncertainty and limit risk appetite.
- Investors await Fed Chair Jerome Powell’s remarks for clues on the interest rate outlook.
Silver (XAG/USD) declines by 1% on Tuesday, trading around $51.75 per ounce at the time of writing, after reaching a new record high at $53.77 earlier in the day. The grey metal is pausing after a spectacular rally driven by safe-haven demand, expectations of further Federal Reserve (Fed) rate cuts, and ongoing concerns about global supply chains.
The latest correction reflects some profit-taking after an exceptional start to the year, with Silver still up more than 80% since January. Commerzbank notes that strains in the physical market, such as surging lease rates and falling COMEX inventories, point to a persistent imbalance between supply and demand.
"Reports indicate that physical metal demand from India has recently picked up significantly, fueling fears of supply bottlenecks, particularly in the London market", noted the bank.
Market sentiment remains cautious amid renewed trade friction between Washington and Beijing. China announced new port fees on US-linked ships on Tuesday, mirroring similar measures previously imposed by Washington. Beijing also sanctioned five US subsidiaries of South Korea’s Hanwha Ocean, intensifying fears of broader disruptions in global shipping and trade flows.
This escalation comes on top of a fragile political backdrop in Europe and Japan, reinforcing demand for precious metals such as Silver and Gold, both seen as traditional safe-haven assets.
In the United States, attention turns to Federal Reserve Chair Jerome Powell, who is scheduled to speak at the National Association for Business Economics (NABE) Annual Meeting. His comments on the economic outlook and future policy direction could set the tone for markets ahead of the blackout period leading to the October Federal Open Market Committee (FOMC) meeting.
Despite the current consolidation, sentiment toward Silver remains broadly positive, supported by a weaker US Dollar (USD), expectations of additional Fed rate cuts, and resilient physical demand.
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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