Silver climbs as safe-haven demand, Fed rate cut bets drive gains
- Silver climbs above $49, benefiting from renewed safe-haven demand ahead of key US inflation data.
- Expectations of Federal Reserve interest rate cuts boost the appeal of the precious metal as the US Dollar weakens.
- The ongoing US government shutdown and US-China trade tensions maintain a risk-averse market mood.
Silver (XAG/USD) advances firmly on Thursday, trading around $49.20 per ounce at the time of writing, up 1.40% for the day. Investors are favoring safe-haven assets as markets remain cautious ahead of the September US Consumer Price Index (CPI) release finally scheduled for this Friday after being delayed due to the government shutdown. Political uncertainty, highlighted by the prolonged shutdown, continues to fuel demand for the grey metal.
The prospect of further monetary easing by the Federal Reserve (Fed) remains a key driver of Silver's rally. Markets now price in nearly a 97% chance of a 25-basis-point interest rate cut at the next policy meeting in October, according to the CME FedWatch tool. Lower rates reduce the opportunity cost of holding non-yielding assets such as Silver, enhancing its attractiveness.
On the international front, renewed trade tensions between the United States (US) and China have revived concerns over global growth. Washington is reportedly considering restrictions on software and technology exports to Beijing in response to China’s latest curbs on rare earth exports. However, markets retain some optimism ahead of a meeting scheduled next week between US President Donald Trump and Chinese President Xi Jinping.
The combination of a more accommodative monetary outlook, persistent political uncertainty, and ongoing geopolitical risks continues to underpin the grey metal, which has gained more than 70% so far this year.
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.
Author
Ghiles Guezout
FXStreet
Ghiles Guezout is a Market Analyst with a strong background in stock market investments, trading, and cryptocurrencies. He combines fundamental and technical analysis skills to identify market opportunities.
