Silver prices (XAG/USD) have reversed their recent gains, trading around $30.90 per troy ounce during European trading hours on Wednesday. The decline comes as the grey metal contends with a slowing Chinese economy, a significant factor given China’s status as the world’s largest manufacturing hub. Silver’s demand in China is substantial, driven by its use in electronics, solar panels, and automotive components.
In the second quarter, China’s Gross Domestic Product (GDP) grew by 4.7% year-over-year, a slowdown from the 5.3% growth observed in the first quarter and below the expected 5.1%. This marks the slowest pace of growth since the first quarter of 2023.
During the Chinese Communist Party’s 20th National Congress, held from July 15 to 18, there were no significant shifts in economic strategy. President Xi Jinping called on the Communist Party to maintain “unwavering faith and commitment” to its strategic agenda.
Standard Chartered projects that the People’s Bank of China (PBoC) will respond to the GDP slowdown by cutting both interest rates and the reserve requirement ratio (RRR). China’s economic growth remains uneven, further complicated by escalating trade tensions, with the US and EU imposing new tariffs on Chinese electric vehicles (EVs).
Moreover, silver prices are under pressure due to a hawkish stance from the Federal Reserve. In a speech on Tuesday, Dr. Adriana Kugler, a member of the Federal Reserve Board of Governors, suggested that if upcoming data does not indicate that inflation is moving towards the 2% target, maintaining current interest rates might be necessary for a longer period.
