Silver prices, denoted by XAG/USD, experienced a slight decline from their weekly high of $27.50 but managed to maintain stability above the crucial support level of $27.00 during Tuesday’s late European session. The resilience of silver reflects investor optimism regarding potential interest rate cuts by the Federal Reserve (Fed) in its upcoming September meeting.
Speculation surrounding a Fed interest rate reduction has intensified following recent economic data from the United States for April, which suggests that the economy is struggling under the current framework of higher interest rates set by the Fed.
The release of the US Nonfarm Payrolls (NFP) report last Friday revealed fewer job additions, a higher unemployment rate, and slower wage growth. These indicators of softening labor market conditions bolster confidence in the Fed’s inclination towards implementing interest rate cuts starting September, as they signal a subdued inflation outlook.
In conjunction with these developments, the 10-year US Treasury yields have declined to 4.46%. Decreasing yields on interest-bearing assets diminish the opportunity cost associated with holding non-yielding assets like silver. Additionally, the US Dollar Index (DXY), which measures the dollar against major currencies, remains above 105.00, influencing silver’s performance.
Furthermore, escalating geopolitical tensions, particularly the risks associated with Israel potentially expanding military operations into Rafah, the southern part of Gaza, have bolstered the appeal of precious metals like silver. Israel’s rejection of a ceasefire proposal agreed upon by Hamas, citing dissatisfaction with the terms, suggests a deepening conflict, enhancing the allure of safe-haven assets amid heightened uncertainty.
The convergence of economic speculation surrounding the Fed’s monetary policy and geopolitical risks underscores the current factors influencing silver prices, which continue to exhibit resilience amidst volatile market conditions. Investors are closely monitoring these dynamics for further insights into silver’s trajectory in the coming months.
