Hawkish Fed expectations weigh on Silver
Expectations surrounding the Federal Reserve have shifted significantly following Chair Kevin Warsh’s hawkish comments at the Jackson Hole Symposium on Friday.
The US central bank chief indicated that interest rates may need to rise if inflation fails to slow sufficiently, increasing pressure on non-yielding assets such as Silver.
Higher interest-rate expectations generally create a challenging environment for precious metals because they increase the appeal of yield-bearing assets.
Rising energy prices add to inflation concerns
Rising energy prices are adding to concerns about inflation. Tensions in the Middle East are supporting Oil prices and increasing the risk of renewed price pressures.
A renewed rise in inflation could strengthen the case for a more restrictive Federal Reserve monetary policy, creating another headwind for Silver.
US Dollar and Fed rate expectations pressure XAG/USD
According to the CME Group FedWatch Tool, markets now see more than a 65% chance of an interest rate hike at the September 15-16 meeting.
These expectations are also helping support the US Dollar, creating an additional headwind for Silver.
Because Silver is priced in US Dollars, a stronger Dollar can make the metal more expensive for buyers using other currencies and can weigh on demand.
US economic data in focus
Investors remain cautious ahead of several US macroeconomic releases that could reshape expectations for Federal Reserve policy.
The Institute for Supply Management releases its Manufacturing Purchasing Managers’ Index for August on Tuesday.
The Job Openings and Labor Turnover Survey report is also expected to provide fresh insights into US labor demand.
Attention will then turn to the Nonfarm Payrolls report on Friday, which could play an important role in shaping expectations for the Fed’s policy path ahead of its September meeting.
What could happen to Silver next?
Strong US economic data could reinforce expectations for monetary tightening and keep Silver under pressure.
In contrast, clearer signs of weakness in the US labor market could reduce hawkish Federal Reserve expectations and potentially provide support for Silver.
Traders will therefore closely monitor upcoming US manufacturing and employment data for clues about the next major direction in XAG/USD.
Silver FAQs
Silver is a precious metal highly traded among investors. It has historically been 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 portfolios, for its intrinsic value or as a potential hedge during periods of high inflation.
Investors can buy physical Silver in coins or bars, or trade it through vehicles such as Exchange Traded Funds that track its price on international markets.
Why do people invest in Silver?
Investors may use Silver to diversify their portfolios, gain exposure to a precious metal and potentially hedge against inflation. Silver can also be accessed through physical bullion and financial products such as ETFs.
Which factors influence Silver prices?
Silver prices can be influenced by Federal Reserve policy, interest-rate expectations, the US Dollar, inflation, investor demand, Gold prices, geopolitical developments and industrial demand.
How does industrial demand affect Silver prices?
Silver has significant industrial applications, including electronics, solar energy and other technologies. Strong industrial demand can support Silver prices, while weaker demand can put pressure on the metal.
How do Silver prices react to Gold’s moves?
Silver often moves in the same broad direction as Gold because both are precious metals. However, Silver can experience larger price swings because it also has significant industrial demand.
Strong US economic data could reinforce monetary tightening expectations and keep Silver under pressure, while signs of labor market weakness could ease hawkish Federal Reserve bets.
Frequently asked questions
Why is Silver falling below $65?
Silver is under pressure from stronger expectations of tighter US monetary policy, a potentially stronger US Dollar and concerns that higher energy prices could keep inflation elevated.
What is the important level for XAG/USD?
The $65.50 area is highlighted as an important level in the current move, while Silver is trading around $64.85.
What could support Silver prices?
Signs of weakness in the US labor market or softer economic data could reduce expectations for monetary tightening and potentially support Silver.
What US data should Silver traders watch?
Traders are watching the ISM Manufacturing PMI, JOLTS job openings data and the Nonfarm Payrolls report for clues about Federal Reserve policy.
Ghiles Guezout
The Pips School editorial team writes independent educational material on forex markets, broker selection and risk management.
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