Silver prices (XAG/USD) fell below the crucial $27.00 support level during Tuesday’s European session. The metal’s decline comes as investors express concerns over the growing demand for silver, essential in industries such as electric vehicles (EV), renewable energy, and electronics.
Fears of a global economic slowdown are weighing on market sentiment, with major economies experiencing slumps in domestic demand. After China and the Eurozone, there is increasing anxiety that the United States might enter a recession due to the Federal Reserve’s prolonged restrictive monetary policy. This has heightened expectations for imminent rate cuts from the Fed.
Market participants are anticipating a 50 basis point (bps) reduction in the Fed’s key borrowing rates to 4.75%-5.00% at the September meeting, with expectations of more than 100 bps cuts throughout the year.
Additionally, higher bond yields and a recovering US Dollar (USD) have added pressure on silver prices. The US Dollar Index (DXY), which measures the Greenback against six major currencies, has climbed to nearly 103.00, rebounding from a more than six-month low of around 102.15. Meanwhile, 10-year US Treasury yields have risen to approximately 3.84%. Historically, higher yields on interest-bearing assets reduce the opportunity cost of holding non-yielding assets like silver and gold.
