Silver price falls toward two‑month low as rising Fed hike bets pressure XAG/USD
- Silver falls more than 1% on Wednesday and trades near recent lows after renewed geopolitical tensions in the Middle East.
- US inflation comes in line with expectations but rises to its highest level since April 2023, supporting higher-rate expectations.
- Markets continue to scale back easing bets and now see the possibility of a Federal Reserve rate hike before year-end.
Silver (XAG/USD) remains under pressure on Wednesday and trades around $64.70 at the time of writing, down 1.02% on the day. The white metal is attempting to stabilize after hitting a two-month low at $63.37, but the rebound remains limited as investors reassess the outlook for monetary policy in the United States (US).
The latest US inflation data showed that the Consumer Price Index (CPI) accelerated to 4.2% YoY in May, its highest level since April 2023 and in line with market expectations. Core inflation rose to 2.9% YoY, while monthly core inflation eased to 0.2%.
The resurgence in inflationary pressures comes amid a sharp rise in energy prices triggered by the escalating conflict between the US and Iran. Higher energy costs are complicating the Federal Reserve’s (Fed) efforts to bring inflation sustainably back toward its 2% target.
Before the escalation in the Middle East, markets were still pricing in several rate cuts this year. Those expectations have largely faded, with investors now considering the possibility of monetary tightening. According to the CME FedWatch Tool, the chances of a 25-basis-point rate hike later this year continue to increase.
Meanwhile, geopolitical tensions remain elevated. The US Central Command (CENTCOM) confirmed that it carried out new strikes against Iranian military facilities after the downing of a US Apache helicopter. In response, Iran launched attacks against several US bases in the region and warned that further operations could follow.
Although geopolitical uncertainty typically supports demand for precious metals, expectations of higher interest rates are exerting a stronger influence on Silver. Unlike yield-bearing assets, Silver does not generate income, making it less attractive when Bond yields and the US Dollar (USD) strengthen.
Support for the Greenback from expectations of a more restrictive monetary policy therefore remains an additional headwind for Silver, which stays vulnerable as long as markets continue to price in a higher-for-longer interest rate environment in the United States.
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.
