Silver price drops as traders await Fed decision, geopolitical risks mount

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Silver (XAG/USD) trades around $79.70 on Monday at the time of writing, down 1.12% on the day. The white metal is under pressure as investors adopt a cautious stance ahead of this week’s monetary policy announcements from major central banks, particularly the Federal Reserve (Fed).

Silver falls near $79.70, losing more than 1% on Monday as traders position ahead of the Federal Reserve policy decision.
Rising Oil prices linked to the Middle East war fuel inflation concerns and reduce expectations of near-term interest-rate cuts.
Geopolitical tensions involving the United States, Iran and Israel help limit deeper losses by sustaining demand for safe-haven assets.

Markets widely expect the Fed to keep its benchmark interest rate unchanged in the 3.50%-3.75% range at Wednesday’s meeting, according to the CME FedWatch tool. If confirmed, it would mark the second consecutive pause following the central bank’s previous easing cycle. A prolonged pause in monetary easing tends to weigh on non-yielding assets such as Silver, as higher interest-rate expectations increase the opportunity cost of holding precious metals.

Inflation concerns linked to surging energy prices are also contributing to the cautious market tone. The escalation of geopolitical tensions in the Middle East has pushed Oil prices higher and raised fears of persistent inflationary pressures. Higher gasoline costs in the United States (US) are already increasing the financial burden on households, which could keep inflation expectations elevated and encourage policymakers to maintain restrictive monetary conditions for longer.

At the same time, geopolitical developments continue to shape sentiment in the precious metals market. The United States recently targeted Iran’s key Oil export hub on Kharg Island, heightening fears over global energy supply disruptions. Although Washington has suggested that the conflict could end within weeks and has discussed forming an international coalition to secure shipping through the Strait of Hormuz, the ongoing tensions keep a layer of uncertainty in financial markets.

This uncertain geopolitical backdrop could help limit deeper declines in Silver prices. Safe-haven assets, such as Silver, tend to attract demand during periods of heightened geopolitical risk, which may cushion the downside even as expectations of prolonged higher interest rates weigh on investor appetite for non-yielding assets.

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.

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