Silver (XAG/USD) maintained its upward momentum on Friday, trading near $29.90 per ounce during the Asian session. The metal’s rally is supported by expectations that the Federal Reserve (Fed) might implement a significant interest rate cut next week. Lower interest rates typically enhance the appeal of non-yielding assets like silver, as they offer relatively better investment returns.
The CME FedWatch Tool indicates strong market anticipation for a 25 basis point (bps) cut by the Fed in September, with the probability of a more substantial 50 bps reduction rising sharply to 41.0%, compared to just 14.0% a day earlier.
Recent U.S. economic data have bolstered these expectations. The Producer Price Index (PPI) for August rose 0.2% month-on-month (MoM), surpassing the forecasted 0.1% increase and the previous month’s 0.0%. Core PPI also saw a monthly gain of 0.3%, exceeding the expected 0.2% rise and rebounding from a 0.2% decline in July. However, Initial Jobless Claims for the week ending September 6 edged up to 230,000, slightly above the prior week’s revised figure of 228,000.
In Europe, the European Central Bank (ECB) reduced its Main Refinancing Operations Rate to 3.65% from 4.25%, while the UK GDP showed no growth in July following a stagnant June. This has heightened speculation about a potential quarter-point rate cut by the Bank of England (BoE) in November, with some traders even anticipating an additional cut in December.
Additionally, markets are keeping an eye on silver demand in China, the world’s largest consumer of the metal, amidst mixed economic signals. The growing renewable energy sector, particularly in solar panel production where silver is a crucial component, also supports silver’s price outlook.
