Silver price falls sharply amid easing geopolitical tensions, Fed policy outlook
- Silver price declines sharply at the end of the week, giving back part of its recent gains.
- Easing geopolitical tensions reduces demand for safe-haven assets.
- Expectations of a restrictive US monetary policy continue to weigh on precious metals.
Silver (XAG/USD) trades around $89.70 on Friday at the time of writing, down 2.50% on the day, extending the corrective move that began after reaching record highs earlier in the week. The precious metal is pressured by a market environment more favorable to risk assets, which weakens its appeal as a safe haven.
The pullback in Silver prices is largely driven by an easing of geopolitical tensions. US President Donald Trump said he has stepped back from the prospect of military action after receiving assurances that killings and executions would stop. These comments help calm fears of regional escalation and encourage investors to rotate toward riskier assets, to the detriment of precious metals.
Market sentiment also improved after Donald Trump stated that he has no plans to remove Federal Reserve (Fed) Chair Jerome Powell. This stance reduces concerns over the independence of the central bank, a factor that had recently supported safe-haven demand. At the same time, the lack of immediate new tariff measures on certain strategic products contributes to easing trade tensions.
On the macroeconomic front, Silver remains under pressure from expectations of higher-for-longer interest rates in the United States (US). The latest employment data confirm the resilience of the US labor market, reinforcing the view that the Federal Reserve could maintain a restrictive monetary policy for several more months. In this context, non-yielding assets such as Silver lose attractiveness compared to still-elevated Bond yields.
Even though the current pullback reflects profit-taking and a short-term shift in sentiment, investors remain attentive to developments in the geopolitical landscape and upcoming Federal Reserve communications, which could reignite volatility in the precious metals market.
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.
