Silver retreats after hitting record high amid trade war fears, Fed rate cut bets
- Silver hits a new all-time high at $54.86 before retreating toward $53.00 on Thursday.
- Renewed US-China trade war fears and a prolonged US shutdown drive demand for safe-haven assets.
- Markets price in further Federal Reserve rate cuts, weakening USD and supporting precious metals.
Silver (XAG/USD) edges lower on Thursday, trading around $53.00 per ounce, down 0.25% for the day at the time of writing, after reaching a new all-time high of $54.86 earlier in the day. The grey metal remains one of the year’s top-performing assets, up more than 80% year-to-date, supported by persistent global economic and political uncertainty.
Investors continue to seek safe-haven assets as US-China trade tensions escalate. US President Donald Trump told reporters on Wednesday that the dispute with China has now escalated into a “full-blown trade war.”
When asked whether the standoff could become a prolonged conflict if talks with Chinese President Xi Jinping later this month fail, Trump replied, “We’re in one now.” The president defended his recent 100% tariff threat on Chinese imports, stating, “If we didn’t have tariffs, we would be exposed as being a nothing.”
His remarks reinforced market fears that the confrontation between Washington and Beijing could persist well beyond the upcoming summit, heightening uncertainty over global trade and growth.
At the same time, the US government shutdown, now entering its third week, is weighing heavily on market confidence. The prolonged funding deadlock has frozen the release of key economic data, making it harder for the Federal Reserve (Fed) to assess the health of the US economy.
Money markets are now almost fully pricing in a 25-basis-point rate cut at the October Fed meeting, followed by another reduction in December. This prospect, coupled with falling US Treasury yields, has weakened the US Dollar (USD) and boosted demand for precious metals.
According to ING, “short-term weakness in the Dollar remains difficult to interpret, but the combination of low yields, trade tensions and a paralyzed government is creating a favorable environment for safe-haven assets.”
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.
