Silver rebounds as Fed rate hike expectations cap gains before US labor data

Silver rebounds after finding support near $56.60, though Fed rate hike expectations continue to limit upside.
Investors await the US JOLTS Job Openings report for fresh clues on the strength of the labor market.
Thursday's US Nonfarm Payrolls report could be the main catalyst for the precious metal this week.

Ghiles Guezout FXStreet

Silver (XAG/USD) rebounds on Tuesday and trades around $58.80, up 0.96% at the time of writing, after finding support near $56.60 earlier in the day. Despite the recovery, the white metal continues to trade in an unfavorable fundamental environment as markets maintain expectations that the Federal Reserve's (Fed) next policy move will be another interest rate hike.

According to the CME FedWatch tool, investors now see nearly an 80% chance that the Fed will deliver at least one additional rate hike before the end of the year. Higher interest rates increase the opportunity cost of holding non-yielding assets such as Silver, continuing to weigh on investor demand for precious metals.

Market attention is now turning to the United States (US) Job Openings and Labor Turnover Survey (JOLTS) data for May, due at 14:00 GMT. Economists expect employers to have posted 7.3M job openings, down from 7.618M in April. A sharper-than-expected slowdown in the labor market could temper expectations for further monetary tightening, while a stronger reading would reinforce bets on additional rate hikes.

Beyond the JOLTS report, the key event of the week will be Thursday's US Nonfarm Payrolls (NFP) report for June. Investors will closely monitor labor market data after Fed Chair Kevin Warsh stated that the central bank's forward guidance is no longer well-suited to the current monetary policy environment.

Silver FAQs

Why do people invest in Silver?

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.

Which factors influence Silver prices?

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.

How does industrial demand affect Silver 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.

How do Silver prices react to Gold’s moves?

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.

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