Silver retreats as trade optimism, stronger US Dollar pressure demand

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Silver (XAG/USD) trades around $48.35 on Wednesday at the time of writing, down 0.70% for the day, extending the previous session’s sharp 7% fall.

Silver retreats as global risk sentiment improves and investors take profits.
Trade optimism and a steadier US Dollar weigh on demand for safe-haven assets.
Expectations of Fed interest rate cuts and US fiscal uncertainty continue to provide some medium-term support.

Silver (XAG/USD) trades around $48.35 on Wednesday at the time of writing, down 0.70% for the day, extending the previous session’s sharp 7% fall. The metal remains under pressure as investors favor risk assets amid improving sentiment surrounding trade negotiations between the United States (US) and China.

Comments from US President Donald Trump on Monday, saying that a “really fair and really great” trade deal could be reached at the Asia-Pacific Economic Cooperation (APEC) Summit in South Korea next week, have boosted confidence in global markets. This has reduced the appeal of defensive assets such as Silver, while equity indices and cyclical commodities advance.

The US Dollar (USD) also stabilizes after its recent rebound. The US Dollar Index (DXY) holds near one-week highs, benefiting from short-covering and modest demand following the heavy sell-off in precious metals. A firmer Greenback typically makes Silver more expensive for non-US investors, adding to the downward bias.

Still, the broader outlook for precious metals remains constructive. The Federal Reserve (Fed) is widely expected to cut interest rates again at its October meeting, with markets pricing in a near-certainty of a 25-basis-point reduction according to the CME FedWatch tool. Lower rates reduce the opportunity cost of holding non-yielding assets like Silver.

Furthermore, the ongoing US government shutdown, now in its fourth week, continues to cloud the economic outlook and delay key data releases, such as the September Consumer Price Index (CPI) report finally due this Friday. This uncertainty, combined with persistent geopolitical risks, could keep safe-haven demand alive and help limit further downside in the medium term.

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.