- The price of silver is rising as market participants await a statement from Fed Chairman Powell on possible interest rate cuts.
- Boston Fed President Susan Collins expressed support for starting rate cuts next month.
- The safe haven silver could continue to gain due to the ongoing deadlock in the elaboration of a ceasefire between Israel and Hamas.
Silver (XAG/USD) is rising above $29.00 per troy ounce during Asian trading hours on Friday. Non-yielding silver prices are gaining ground ahead of US Federal Reserve (Fed) Chairman Jerome Powell’s speech at the Jackson Hole Symposium later in the North American session. Powell may make a statement on possible interest rate cuts in the United States (US), which is eagerly awaited by market participants.
Several Federal Reserve officials have recently expressed optimism about a possible rate cut next month, a perspective also reflected in the latest FOMC minutes. On Thursday, Federal Reserve Bank of Boston President Susan Collins expressed confidence that the U.S. central bank can lower inflation without triggering a recession and signaled support for starting rate cuts next month, according to Reuters.
Jeff Schmid, president of the Kansas City Fed, mentioned in an interview with CNBC in Jackson Hole that he is closely studying the factors behind the rise in the unemployment rate and will rely on the data to decide whether to support a rate cut next month.
According to the CME FedWatch tool, markets are now pricing in a 73.5% probability of a 25 basis point (bp) Fed rate cut at its September meeting. A day ago, the probability was 62.0%. The probability of a 50 basis point rate cut has fallen to 26.5% from 38.0% the day before.
Silver, a traditional safe haven, could gain support due to the ongoing stalemate in securing a ceasefire between Israel and Hamas. The stalemate raises the risk of a wider conflict in the Middle East. Disagreements over Israel’s military presence in Gaza and the release of Palestinian prisoners are hampering progress on a ceasefire and hostage-taking agreement. Sources, including two Hamas officials and three Western diplomats, say these disputes have arisen from additional demands made by Israel after Hamas initially accepted a ceasefire proposal, according to Reuters.
However, silver demand has faced challenges after recent industrial production data from China’s National Bureau of Statistics showed a weak economy in the world’s largest manufacturing hub. Given the importance of silver for various industrial applications, this decline in industrial demand is significant.
Frequently asked questions about silver
Silver is a precious metal that is widely traded among investors. It has historically been used as a store of value and a medium of exchange. Although it is less popular than gold, traders can turn to silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge in times of high inflation. Investors can buy physical silver in coins or bars, or trade it through instruments such as exchange-traded funds that track its price on international markets.
The price of silver can change based on a variety of factors. Geopolitical instability or fear of a severe recession can drive up the price of silver due to its safe-haven status, although to a lesser extent than gold. As a non-yielding investment, silver tends to rise when interest rates are lower. Its movements also depend on how the U.S. dollar (USD) behaves, as the asset is valued in dollars (XAG/USD). A strong dollar tends to keep the price of silver in check, while a weaker dollar is likely to drive prices higher. Other factors such as investment demand, mining supply—silver is much more common than gold—and recycling rates can also affect prices.
Silver is widely used in industry, especially in areas such as electronics or solar energy, because it has one of the highest electrical conductivities of any metal – higher than copper and gold. A surge in demand can raise prices, while a decline tends to lower them. The dynamics of the US, Chinese and Indian economies can also contribute to price fluctuations: in the US and especially in China, silver is used in various processes in major industries; in India, consumer demand for the precious metal for jewelry also plays an important role in pricing.
Silver prices tend to follow the movements of gold prices. When gold prices rise, silver usually follows the trend as they share a similar status as safe haven assets. The gold/silver ratio, which indicates the number of ounces of silver required to equal the value of one ounce of gold, can help determine the relative value of both metals. Some investors consider a high ratio to be an indicator that silver is undervalued or gold is overvalued. On the contrary, a low ratio could indicate that gold is undervalued compared to silver.
