Silver prices have come under pressure during the Asian trading session on Friday, sliding to around $31.70 per troy ounce. This decline is largely attributed to a modest rise in US Treasury yields, which increases the opportunity cost of holding non-yielding assets like silver. As of the latest data, the 2-year and 10-year US Treasury bond yields stand at 4.20% and 4.33%, respectively. Higher bond yields typically make assets like precious metals less attractive, as they do not offer interest returns compared to government bonds.
Moreover, the stronger US Dollar (USD) is also exerting downward pressure on silver prices. The US Dollar Index (DXY), which measures the USD against a basket of six major currencies, has risen to around 104.50, making dollar-denominated silver more expensive for buyers using other currencies. This dynamic reduces demand for silver and other precious metals, particularly in international markets.
Potential Chinese Stimulus Could Boost Silver Demand
On the positive side, there are growing expectations of potential stimulus measures from China following the conclusion of the National People’s Congress Standing Committee’s five-day meeting. Reports earlier in the week suggested that the stimulus package could exceed 10 trillion yuan. As one of the world’s largest manufacturing hubs for electronics, solar panels, and automotive components, China’s economic stimulus could lead to increased demand for silver, particularly in industrial applications, which use silver in electronic devices, solar energy production, and other technologies.
Impact of Federal Reserve’s Rate Cut on Silver
Despite the stronger US Dollar and rising Treasury yields, silver prices found some support earlier this week after the Federal Reserve’s decision to cut interest rates. The Federal Open Market Committee (FOMC) reduced its benchmark overnight borrowing rate by 25 basis points to a target range of 4.50%-4.75% during its November meeting. Federal Reserve Chair Jerome Powell indicated that the central bank will continue with interest rate cuts, emphasizing that supporting employment is now as important as curbing inflation. This dovish stance from the Fed created some bullish momentum for non-yielding assets like silver, as lower rates reduce the opportunity cost of holding precious metals.
Outlook and Market Focus
Looking ahead, traders will closely monitor the release of the preliminary US Michigan Consumer Sentiment index later on Friday, as it could provide further insights into US consumer sentiment and the broader economic outlook. Additionally, developments in China’s stimulus plans and any further movement in US Treasury yields and the US Dollar will likely remain key drivers of silver price action in the short term.
In summary, while the stronger US Dollar and rising yields are currently weighing on silver, the potential for increased demand from China’s stimulus measures and the ongoing dovish stance from the Federal Reserve could provide some support to prices in the near future.
Related Topics:
