Silver tumbles over 3% as Fed rate hike bets fuel US Dollar rally
- Silver drops more than 3% on Thursday as the stronger US Dollar weighs on precious metals.
- Higher-than-expected US inflation reinforces expectations of Federal Reserve rate hikes.
- Hawkish comments from Federal Reserve officials add pressure on non-yielding assets.
Silver (XAG/USD) extends its decline on Thursday, losing 3.04% on the day to trade around $50.15 at the time of writing. The white metal faces strong selling pressure as the strengthening US Dollar (USD) and growing expectations of further monetary tightening by the Federal Reserve (Fed) reduce the appeal of precious metals.
The US Dollar Index (DXY), which measures the Greenback's performance against six major currencies, trades near 103.10, after hitting its highest level since April 2025. A stronger US Dollar makes Silver more expensive for foreign investors, while higher interest rates reduce the attractiveness of non-yielding assets.
The latest US inflation figures reinforce expectations of a more restrictive monetary policy. The core Consumer Price Index (CPI) rose 0.3% MoM in October, exceeding forecasts of 0.2%, while headline inflation increased 0.4%, above the expected 0.3%.
Markets now fully price in a Fed rate hike in December, and put the chance of another interest rate rise in January at nearly 65%, supported by increasingly hawkish comments from policymakers. Cleveland Fed President Beth Hammack said on Thursday that monetary policy needs to become restrictive, warning that rising energy costs are feeding through to other prices. Meanwhile, Fed Governor Christopher Waller previously raised the possibility of a 50-basis-point (bps) hike in December if core inflation reached 0.3% or higher, a threshold confirmed by the latest data.
Meanwhile, declining US equity markets may add selling pressure on Silver as investors liquidate positions to cover losses elsewhere. Traders now await Friday's US Producer Price Index (PPI) release and further Fed comments for additional clues on the interest rate outlook.
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.
