Silver price consolidates below $49 on Fed rate-cut outlook
- Silver retreats slightly to $48.80 as the market consolidates below the $49 threshold.
- Softer US inflation data reinforces expectations of further Federal Reserve rate cuts.
- Weaker US Dollar and lower yields continue to provide a supportive backdrop for precious metals in the medium term.
Silver (XAG/USD) eases on Friday, trading around $48.85 per troy ounce at the time of writing, down 0.10% for the day, as the market consolidates below the psychological $49 level. The metal is taking a breather after its recent rally, which was driven by growing expectations of further monetary easing from the US Federal Reserve (Fed).
The latest US Consumer Price Index (CPI) report showed that headline inflation rose by 0.3% MoM, undershooting the 0.4% forecast, while core inflation slowed to 3.0% YoY. The data reinforced expectations that the Fed will maintain its dovish stance, with markets now pricing in nearly full odds of a 25-basis-point rate cut at the October 29-30 meeting and another in December. Lower borrowing costs tend to support demand for non-yielding assets such as Silver, reducing the opportunity cost of holding the metal.
At the same time, the US Dollar (USD) remains under mild pressure, while Treasury yields edge lower, further underpinning precious metals. The subdued tone across US economic data and persistent political uncertainty related to the ongoing US government shutdown continue to weigh on investor sentiment, sustaining demand for safe-haven assets.
Silver’s medium-term outlook remains supported by the combination of easing inflation, expectations of further Federal Reserve (Fed) policy accommodation, and the softer Greenback. However, the latest macroeconomic data painted a mixed picture of the United States (US) economy.
The S&P Global Composite Purchasing Managers Index (PMI) for October climbed to 54.8, marking the strongest pace of private-sector growth in three months. The Services PMI advanced to 55.2 from 54.2, while the Manufacturing PMI edged higher to 52.2 from 52, pointing to broad-based expansion. This resilience in business activity suggests that domestic demand remains robust despite weakening external trade conditions.
On the other hand, consumer sentiment data offered a more cautious tone. The University of Michigan survey showed that confidence slipped in October, with the headline index falling to 53.6 from 55.1 the previous month. The Consumer Expectations Index also eased to 50.3, while long-term inflation expectations rose modestly to 3.9%.
These figures confirm that while business activity remains strong, household sentiment continues to weaken, reinforcing the case for a gradual pace of monetary easing by the Fed in the coming months.
For now, the Silver price remains resilient, with dips likely to attract buying interest as markets position for additional Fed easing through the end of the 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.
