Silver sinks as risk-on sentiment, trade optimism weigh
- Silver retreats sharply as improved risk sentiment erodes safe-haven demand.
- Hopes for progress in US-China trade negotiations and a stronger Greenback trigger broad profit-taking in precious metals.
- Expectations of Fed interest rate cuts and lingering geopolitical risks keep the medium-term outlook supportive.
Silver (XAG/USD) sinks on Tuesday, trading around $48.70 at the time of writing, down 7.00% for the day after briefly touching an intraday low at $47.90. The sharp decline comes after the metal recently tested multi-year highs near $55, prompting investors to lock in profits amid a rebound in the US Dollar (USD) and improving market sentiment.
Renewed optimism surrounding potential trade progress between the United States (US) and China is dampening safe-haven appetite. Comments from US President Donald Trump suggesting that a “really fair and really great” trade deal could be reached at the Asia-Pacific Economic Cooperation (APEC) Summit in South Korea next week lifted risk assets globally. The perception that the threatened 100% tariffs on Chinese imports could be avoided has further fueled confidence, weighing on demand for defensive assets such as Silver.
The rebound of the US Dollar is adding to downward pressure on the grey metal. The US Dollar Index (DXY), which tracks the Greenback against a basket of major currencies, hovers near one-week highs around 98.90 on Tuesday, extending its recovery for the third consecutive day. A stronger US Dollar typically makes dollar-denominated assets like Silver more expensive for international investors, accelerating the current correction.
Nevertheless, the broader picture for Silver remains constructive. Market participants continue to anticipate an interest rate cut from the Federal Reserve (Fed), with the CME FedWatch tool showing that investors are pricing in a nearly 99% chance of a 25-basis-point rate cut at the upcoming October policy meeting. Lower interest rates tend to enhance the appeal of non-yielding assets such as Silver. In addition, the ongoing US government shutdown and lingering geopolitical risks are likely to keep safe-haven flows alive, limiting the downside in the medium term.
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.
