Silver edges lower as Fed rate cut hopes fade, geopolitical tensions persist

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Silver (XAG/USD) trades around $76.50 at the time of writing, down 0.70% on the day, with Silver starting the week on a weaker footing after failing to extend its recent rebound.

Silver trades around $76.50 and edges lower at the start of the week.
Softer US inflation fails to strengthen expectations of an imminent Fed rate cut.
US-Iran tensions sustain safe-haven demand that could help limit downside.

Silver (XAG/USD) trades around $76.50 at the time of writing, down 0.70% on the day, with Silver starting the week on a weaker footing after failing to extend its recent rebound. The white metal is facing profit-taking as investors reassess US monetary policy prospects in light of the latest macroeconomic data.

Recent figures from the United States (US) show that inflation, as measured by the Consumer Price Index (CPI), slowed in January. The headline index rose by 0.2% MoM, compared with 0.3% previously, while the annual rate eased to 2.4% from 2.7%. In theory, softer price pressures support the case for monetary easing. However, markets appear more focused on the resilience of the labor market and on the cautious stance maintained by the Federal Reserve (Fed).

The Fed is not providing any clear signal in favor of an imminent rate cut. According to the CME FedWatch tool, traders largely expect the central bank to keep rates unchanged at the March and April meetings, maintaining the current 3.50%-3.75% range. This outlook limits the immediate appeal of non-yielding assets such as Silver, whose valuation partly depends on real yields and the direction of the US Dollar (USD).

At the same time, the broader market tone remains mixed between caution and risk appetite. A modest rebound in the US Dollar is weighing on dollar-denominated precious metals, making Silver more expensive for international investors. Nevertheless, the upside potential for the Greenback appears capped by persistent expectations of policy easing later in the year.

On the geopolitical front, tensions between Washington and Tehran remain a key factor. Media reports suggest that the US military is preparing for the possibility of prolonged operations against Iran in the event of an escalation. Such a scenario could revive risk aversion and boost demand for safe-haven assets, including Silver.

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.