• Silver sits near one-year lows as the Fed kept interest rates steady while offering limited forward guidance.
• Fed kept interest rates steady at 3.75%–4.00%, pointing to ongoing expansion in overall economic activity.
• Fed Chair Warsh reaffirmed commitment to 2% inflation and price stability, emphasizing that the economy remains strong.

Silver price (XAG/USD) extends its losses for the second successive day, trading around $53.30 per troy ounce during Asian hours on Thursday. Silver remains anchored near one-year lows following the US Federal Reserve's decision to hold interest rates steady, as market participants had widely anticipated. The precious metal continues to face downward pressure as the central bank offered limited guidance regarding the timing and trajectory of its next policy move.

The Federal Reserve held interest rates steady at 3.75%–4.00%, noting that economic activity continues to expand. In its statement, the Fed highlighted resilient domestic spending, robust capital investment, and strong productivity growth. Addressing its employment mandate, the central bank observed that job gains have kept pace with the workforce while the unemployment rate has shown little change.

On the inflation front, the Fed acknowledged that price pressures remain elevated, but it chose to pause further rate hikes to gather additional data and assess the appropriate monetary policy stance. The decision was not unanimous, as Fed Governor Lisa Cook and Cleveland Fed President Beth Hammack dissented in favor of an immediate rate increase.

Fed Chair Kevin Warsh reaffirmed the Federal Open Market Committee's commitment to delivering price stability and achieving its 2% inflation target, emphasizing that the underlying economy remains strong. Warsh also outlined future scheduling for monetary policy, noting that the Fed will hold eight meetings next year, including one without a formal vote, and that he anticipates six policy-setting meetings in 2028.

Traders are now turning their attention to the upcoming US Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred inflation metric, for clearer signals on the future trajectory of monetary policy.

Meanwhile, market participants are monitoring renewed diplomatic initiatives aimed at preventing further escalation of conflict in the Middle East. Despite these diplomatic efforts, persistently elevated oil prices continue to fuel inflation concerns and bolster expectations of prolonged high interest rates. This environment of higher borrowing costs presents a challenging backdrop for Silver, as rising yields and persistent rate pressure tend to weigh on non-yielding precious metals.

Systematic flows rotate out of Silver into base metals

According to TD Securities, recent systematic activity has seen Commodity Trading Advisors adjust their exposure across the metals complex, with the bank noting that “in metals markets, CTAs are sellers of silver and buyers of zinc and lead on the day.” This shift underscores the divergence between precious and base metals in current positioning flows, as investors trim silver while selectively adding to industrial metals such as zinc and lead.

Silver FAQs

Silver is a precious metal highly traded among investors. It has been historically used as a store of value and a medium of exchange. Although less popular than Gold, traders may turn to Silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during high-inflation periods. Investors can buy physical Silver, in coins or in bars, or trade it through vehicles such as Exchange Traded Funds, which track its price on international markets.

Silver prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can make Silver price escalate due to its safe-haven status, although to a lesser extent than Gold's. As a yieldless asset, Silver tends to rise with lower interest rates. Its moves also depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong Dollar tends to keep the price of Silver at bay, whereas a weaker Dollar is likely to propel prices up. Other factors such as investment demand, mining supply – Silver is much more abundant than Gold – and recycling rates can also affect prices.

Silver is widely used in industry, particularly in sectors such as electronics or solar energy, as it has one of the highest electric conductivity of all metals – more than Copper and Gold. A surge in demand can increase prices, while a decline tends to lower them. Dynamics in the US, Chinese and Indian economies can also contribute to price swings: for the US and particularly China, their big industrial sectors use Silver in various processes; in India, consumers’ demand for the precious metal for jewellery also plays a key role in setting prices.

Silver prices tend to follow Gold's moves. When Gold prices rise, Silver typically follows suit, as their status as safe-haven assets is similar. The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, may help to determine the relative valuation between both metals. Some investors may consider a high ratio as an indicator that Silver is undervalued, or Gold is overvalued. On the contrary, a low ratio might suggest that Gold is undervalued relative to Silver.

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.