Silver (XAG/USD) declined by 1.02% on Wednesday, trading around $72.30 after failing to sustain a move above the $74.00 level. The rebound from recent lows near $72.00 has been limited, reflecting a lack of bullish conviction as market participants remain cautious ahead of the Federal Reserve's (Fed) upcoming decision. The US Dollar (USD) continues to exhibit a moderately bullish bias, supported by expectations that the Fed will maintain a restrictive monetary policy stance. Investors are largely sidelined, anticipating that the Fed will keep interest rates unchanged within the 3.50%-3.75% range, with attention now turning to Chair Jerome Powell’s speech for further guidance on the future path of rates [1].
Higher-for-longer rate expectations are exerting downward pressure on precious metals, including Silver, by increasing the opportunity cost of holding non-yielding assets. Rising bond yields, driven by persistent inflation concerns, have further reduced the appeal of Silver for investors. Additionally, escalating geopolitical tensions between the United States and Iran, particularly around the Strait of Hormuz, are fueling concerns over energy prices and reinforcing inflation expectations. The US administration is reportedly considering extending the economic blockade against Iran, a move that could keep oil prices elevated and complicate central banks' efforts to manage inflation [1].
Analysts at TD Securities suggest that Silver could face further downside if inflation slows economic growth while keeping rates elevated. They highlight that weaker industrial demand, combined with higher carry costs, may continue to weigh on Silver prices before a potential recovery later in the year as supply constraints re-emerge [1].
CONCLUSION
Silver prices are under pressure due to Fed rate uncertainty, a strong US Dollar, and geopolitical tensions that are fueling inflation concerns. Analysts see potential for further downside in the near term, with a possible recovery later in the year if supply constraints materialize.