Silver retreats as firm US Dollar, higher yields weigh on precious metals
- Silver drops more than 2% on Tuesday as improving risk sentiment reduces demand for safe-haven assets.
- Rising Oil prices are fueling inflation concerns and pushing markets to strengthen expectations of prolonged monetary tightening.
- Higher US Treasury yields and a firmer US Dollar are adding further pressure on precious metals.
Silver (XAG/USD) remains under pressure on Tuesday and trades around $76.00 at the time of writing, down 2.13% on the day. The white metal is giving back part of its recent gains as risk appetite improves following US President Donald Trump's announcement regarding the postponement of an immediate military intervention against Iran.
The easing of geopolitical tensions temporarily reduces demand for safe-haven assets. Donald Trump said negotiations with Iran are continuing after requests from Gulf leaders, while also stating that the United States (US) remains prepared to launch a large-scale military operation if diplomatic discussions fail.
Despite this relative easing, markets remain focused on the economic consequences of the Middle East conflict. Disruptions around the Strait of Hormuz continue to support Oil prices, increasing concerns about global inflation. This dynamic reinforces expectations that the Federal Reserve (Fed) may maintain a restrictive monetary policy for longer, or even raise interest rates before year-end.
According to the CME FedWatch tool, investors are increasing bets on the possibility of additional monetary tightening later this year. At the same time, US Treasury yields remain close to recent highs, with the benchmark US 10-year Treasury yield trading near 4.60%.
Higher yields increase the opportunity cost of holding non-yielding assets such as Silver. Meanwhile, the US Dollar (USD) remains supported by expectations of a more restrictive monetary policy, reducing the appeal of the metal for buyers using other currencies.
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.
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.
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.
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.
Nothing in this material constitutes investment advice, personal recommendation, investment research, an offer, or a solicitation to buy or sell any financial instrument. The content has been prepared without consideration of your individual investment objectives, financial situation, or needs, and should not be treated as such.
Past performance is not a reliable indicator of future performance and/or results. Forward-looking scenarios or forecasts are not a guarantee of future performance. Actual results may differ materially from those anticipated.
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