Silver price (XAG/USD) continues its winning streak that began on September 9, trading around $31.00 per Troy ounce during Monday’s Asian session. The non-yielding Silver extends its upside due to growing speculation that the US Federal Reserve will opt for a jumbo 50 basis points rate cut at its upcoming monetary policy meeting.
The demand for Silver is gaining traction due to a weaker US Dollar (USD), driven by lower Treasury yields. As Silver is a dollar-denominated commodity, it becomes cheaper for buyers using other currencies, which helps support increased demand for the precious metal.
The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against its six major peers, trades around 100.81 with 2-year and 10-year yields on US Treasury bonds standing at 3.58% and 3.65%, respectively, at the time of writing.
The market is divided over the scale of the rate cut by the Federal Reserve (Fed) on Wednesday. According to the CME FedWatch Tool, markets anticipate 41.0% odds of a 25 basis point (bps) rate cut by the Fed at its September meeting. The likelihood of a 50 bps rate cut has increased to 59.0%, up from 50.0% a day ago.
Additionally, markets are evaluating demand prospects in China after mixed economic indicators. Silver is essential in various industrial applications, such as electronics, solar panels, and automotive components. Given China's status as one of the world's largest manufacturing hubs, the country's industrial demand for Silver is significant.
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.