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Silver price slides as rising US yields, hawkish Fed remarks dent demand

  • Silver falls around 3.20% on Thursday, with XAG/USD trading near $84.70.
  • Higher US Treasury yields and a stronger US Dollar limit demand for precious metals.
  • Hawkish comments from Federal Reserve officials reinforce expectations of higher interest rates for longer.

Silver (XAG/USD) trades lower on Thursday, falling 3.20% to around $84.70 at the time of writing as investors take profits after the metal’s recent rally. The decline comes as higher US Treasury yields and a firmer US Dollar (USD) reduce the attractiveness of non-yielding assets, while markets reassess expectations for the Federal Reserve’s (Fed) policy path.

The correction in Silver follows a sharp advance earlier in the week, with the metal previously benefiting from technical momentum and stronger demand for industrial metals. OCBC strategist Christopher Wong recently noted that Silver’s rally appeared increasingly stretched in the short term, warning that overbought conditions and potential “buy the rumor, sell the fact” behavior could encourage profit-taking pressure.

The US Dollar remains supported by a hawkish repricing of Fed expectations. Recent inflation data continues to suggest persistent price pressures, while labor market conditions remain relatively stable, reducing the urgency for policymakers to ease monetary policy.

Kansas City Fed President Jeffrey Schmid said on Thursday that continued inflation remains the most significant risk facing the economy. Schmid added that although the United States (US) economy remains resilient and the labor market continues to function effectively, elevated Oil prices still affect household spending and business costs.

Higher interest rate expectations have pushed US Treasury yields upward and strengthened the Greenback, creating headwinds for precious metals. Since Silver does not provide yield, rising returns on fixed-income assets tend to reduce its relative appeal.

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

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.

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