Silver rebounds strongly as solid US jobs data tempers rapid Fed rate cut expectations

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Silver (XAG/USD) trades higher on Wednesday, hovering around $83.90 at the time of writing, up 3.65% on the day. The white metal maintains a constructive tone after absorbing the initial pressure triggered by the release of a solid US employment report, which briefly supported the US Dollar (USD).

Silver holds well above $83.00 after a strong rebound for the day.
Solid US job creation tempers expectations of rapid Fed rate cuts.
Monetary policy expectations remain focused on a potential first-rate cut in June.

The January US Employment Situation Report points to a more resilient labor market than expected. Nonfarm Payrolls (NFP) increased by 130K, above market expectations of around 70K and higher than December’s revised 48K. At the same time, the Unemployment Rate edged down to 4.3% from 4.4%.

On the wage front, Average Hourly Earnings rose by 0.4% MoM in January, accelerating from 0.1% in December and exceeding the 0.3% consensus forecast. On an annual basis, wage growth held steady at 3.7% YoY, slightly above expectations of 3.6%. This solid wage dynamic suggests that inflationary pressures remain present.

These figures reduce the urgency for immediate monetary easing by the Federal Reserve (Fed). Markets continue to price in around two rate cuts this year, with roughly a 49% chance of a first reduction in June, according to the CME FedWatch tool. Several Fed officials strike a cautious tone. Cleveland Fed President Beth Hammack states that policymakers could keep rates unchanged for an extended period, stressing the need for inflation to return sustainably to 2%. Meanwhile, Dallas Fed President Lorie Logan indicates that a more pronounced cooling in the labor market would be required to justify additional rate cuts.

In this context, Silver’s rebound reflects a balance between still-solid US fundamentals and lingering expectations of monetary easing over the medium term. While a firmer US Dollar may cap immediate upside potential, the prospect of real rates potentially moving lower later this year continues to underpin the appeal of precious metals such as 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.