Impact of US Treasury yields and US Federal Reserve expectations
A key driver of the end-of-week rebound in silver prices was the decline in US Treasury yields. This decline was triggered by growing investor confidence that the Federal Reserve could begin cutting interest rates as early as September following signs of cooling inflation. Lower interest rates generally make non-yielding assets like silver more attractive, leading to increased buying interest. In addition, positive US unemployment numbers showing lower-than-expected claims eased recession fears and provided a temporary boost to silver prices.
Nevertheless, the overall market sentiment remained cautious, with traders particularly focused on the upcoming US Consumer Price Index (CPI) report, which could significantly influence the Federal Reserve’s policy decisions. A favorable inflation reading could bolster the case for rate cuts and potentially further boost demand for silver as a hedge against economic uncertainty.
Concerns about industrial demand from the US and China
While the possibility of a rate cut by the Federal Reserve has created some bullish sentiment, industrial demand for silver has continued to be a concern. Both the US and China, two of the largest industrial silver consumers, have shown signs of slowing demand. In the US, manufacturing activity has slowed, partly due to ongoing recession fears, which has dampened industrial demand for silver. In China, the world’s largest silver consumer, economic data also points to a slowdown in the manufacturing sector, further limiting the metal’s upside potential.
The weak industrial demand from these two economic giants has significantly limited silver’s price increases. Although the market speculated about possible monetary easing in the US, the lack of industrial demand created a ceiling that silver had difficulty breaking through.
