Silver prices (XAG/USD) have ended a two-day decline, trading around $30.80 per troy ounce during early European hours on Tuesday. This recovery is driven by dovish remarks from Federal Reserve Chair Jerome Powell regarding the monetary policy outlook, enhancing the attractiveness of precious metals. Lower borrowing costs increase the appeal of non-yielding assets like silver for investors.
In comments made Monday, Powell noted that three inflation readings this year “add somewhat to confidence” that inflation is trending toward the Fed’s target sustainably, suggesting that interest rate cuts could be on the horizon.
Furthermore, San Francisco Fed President Mary Daly remarked that inflation is decelerating in a manner that supports confidence in reaching the 2% target. However, she emphasized that further data is needed before any rate decisions can be made.
Market expectations for a rate cut at the September Fed meeting have risen significantly, with CME Group’s FedWatch Tool showing an 85.7% probability of a 25-basis point reduction, up from 71.0% a week prior. Investors are closely watching the upcoming US Retail Sales data for June, which will provide further insight into the economic landscape.
Despite the positive sentiment, silver may face headwinds due to disappointing economic data from China, where growth in the second quarter fell short of expectations amid weak domestic demand. As a major consumer of silver for industrial uses, including electronics and solar panels, China’s economic performance is crucial for silver’s demand.
Additionally, the third plenum of the Chinese Communist Party’s 20th National Congress is currently underway from July 15 to 18. Standard Chartered anticipates rate cuts and a reduction in the reserve requirement ratio (RRR) by the People’s Bank of China, as GDP growth showed signs of slowing in Q2. Heightened trade tensions, including new tariffs imposed by the US and EU on Chinese electric vehicles, also pose challenges to China’s economic outlook.
