Silver supported by Fed rate-cut expectations, US economic concerns

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Silver continues to rise, supported by expectations of further Federal Reserve rate cuts.
Weak US data and lingering uncertainty about the economic outlook sustain safe-haven demand.
The US Dollar steadies slightly as markets await FOMC speeches after the government shutdown resolution.

Silver (XAG/USD) trades around $51.70 on Wednesday at the time of writing, up 1.00% on the day, extending its recent winning streak. The grey metal benefits from growing speculation that the Federal Reserve (Fed) will cut interest rates again in December. According to the CME FedWatch tool, markets now price in nearly a 68% chance of a 25-basis-point reduction, up from around 62% a day earlier, reinforcing investor appetite for non-yielding assets such as Silver.

The expectations of additional monetary easing follow a string of weak economic indicators in the United States (US). The University of Michigan Consumer Sentiment Index dropped to its lowest level since 2022, while October’s job losses and subdued retail activity suggest slowing growth. These signs support the view that the Fed will focus on stabilizing economic momentum rather than containing inflation, a backdrop that typically favors precious metals.

The resolution of the partial US government shutdown has helped improve market sentiment, although concerns remain about its economic cost. The US Senate passed a funding bill earlier this week, and the House of Representatives is expected to approve it soon, paving the way for a reopening of federal agencies. However, the long delay in data publication is likely to complicate the Fed’s short-term policy assessment.

The US Dollar (USD) remains under pressure, with the US Dollar Index (DXY) hovering around 99.60 ahead of several speeches by Federal Open Market Committee (FOMC) members later in the day. Analysts at OCBC note that the lack of fresh data will keep markets focused on Fed communication, while ING warns that renewed data flow could reveal further weakness in US employment and growth, posing downside risks for the Greenback. The weakness of the US Dollar makes USD-denominated precious metals more attractive to international investors, thereby supporting Silver prices.

In this environment, Silver remains well supported by a mix of safe-haven demand and dovish monetary expectations, even as improving political clarity could temporarily limit its upside potential.

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.