Key Takeaways:
- Silver price is on the rise amidst expectations of aggressive rate cuts by the Fed.
- Weak US manufacturing and labor market data have fueled bets on further interest rate cuts.
- The likelihood of a 50 basis points rate cut by the Fed has increased to 41.0% according to the CME FedWatch Tool.
- Traders are awaiting key economic data releases to gauge the potential size of the rate cut.
Silver Price Continues to Rise
Silver price (XAG/USD) continues to gain ground for the second consecutive session, trading around $28.40 per troy ounce during Thursday’s European hours. The non-yielding assets like Silver could advance further as weak US manufacturing and labor market data spurred bets that the Federal Reserve will cut interest rates more aggressively to avert an economic downturn.
US Economic Data Impact
July’s US JOLTS Job Openings came in below expectations, signaling a further slowdown in the labor market. Additionally, the ISM Manufacturing PMI showed that factory activity contracted for the fifth straight month.
According to the CME FedWatch Tool, markets are fully anticipating at least a 25 basis point (bps) rate cut by the Federal Reserve at its September meeting. The likelihood of a 50 bps rate cut has risen to 41.0%, up from 34.0% a week ago.
Upcoming Economic Data
Traders now await US ISM Services PMI and Initial Jobless Claims scheduled to be released on Thursday. Attention will shift to Friday’s US Nonfarm Payrolls (NFP) to gain more cues on the potential size of an expected rate cut by the Fed this month.
Fed Comments on Rate Cut
Atlanta Federal Reserve President Raphael Bostic said on Wednesday that the Fed is in a favorable position but added that they must not maintain a restrictive policy stance for too long, per Reuters. FXStreet’s FedTracker, which gauges the tone of Fed officials’ speeches on a dovish-to-hawkish scale from 0 to 10 using a custom AI model, rated Bostic’s words as neutral with a score of 4.6.
Silver FAQs
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.
Factors Affecting 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.
Industrial Use and Demand Influences
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 jewelry also plays a key role in setting prices.
Relationship with Gold and Price Movements
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.