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Business News/ Markets / Stock Markets/  Silver prices slip another 2%, down 11% in 9 sessions; what's behind the fall?
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Silver prices slip another 2%, down 11% in 9 sessions; what's behind the fall?

Silver prices have dropped 10.53% in the last nine sessions, currently trading at $29.2 per ounce on Comex. Recent data showed that China's central bank paused its purchases of precious metals, including gold and silver, in May.

Silver prices slip 2%Premium
Silver prices slip 2%

Silver prices tumbled another 2% on the Comex in today's sessions, reaching $29.13 an ounce, extending its bearish streak for the fourth straight week. In recent weeks, precious metals have lost some of their luster after an extended rally that pushed silver to multi-year highs. 

This rally was largely fueled by heightened expectations of a Federal Reserve rate cut, substantial purchases by global central banks, a surge in safe-haven demand, and retail investors seeking to diversify their portfolios.

However, the fading of some positive triggers, such as near-term Fed rate cut bets and a pause in the central bank's buying, negatively impacted precious metal prices, including silver. As a result, silver prices have dropped 10.53% in the last nine sessions. 

Also Read: Gold price dips ahead of US Fed meeting. Opportunity to buy in this correction?

Currently, Comex silver is trading at $29.2 per ounce, down $3.27 from its 11-year high of $32.75, marked on May 29. Domestically, silver prices on the MCX fell to 88,161 per kilo in today's session. 

Fading Fed rate cut hopes

On Friday, silver prices tumbled 5% in intraday trade following the release of the U.S. jobs report, which supported a hawkish outlook for the Federal Reserve. The report showed that nonfarm payrolls increased by 272,000 in May, surpassing the estimate of 185,000 and April’s gain of 175,000.

This underscores the resilience of the U.S. labor market during a prolonged period of restrictive interest rates by the Federal Reserve. The data added to signals of a robust macroeconomic backdrop after the ISM PMI reflected a sharp expansion in the U.S. services sector.

The data supports the case for a lower magnitude of rate cuts by the Federal Reserve this year, assuming inflation does not slow to the central bank’s target. Consequently, markets now expect just one rate cut this year. 

Also Read: Midcaps, smallcaps strongly outperform Sensex in 2024 despite valuation concerns; what is driving broader market?

The odds for a Fed easing in September fell sharply to 55% from 68% before the report, as data suggests that higher interest rates would remain in place for longer, strengthening the dollar and making silver more expensive for overseas buyers.

Fed officials have indicated that more evidence is needed to confirm inflation is easing toward the central bank’s 2% target as they consider when to cut rates. Investors are looking for convincing signs of a soft landing that would justify U.S. rate cuts. Lower borrowing costs typically boost gold, which does not pay interest.

Also Read: Gold hits two-week high; payrolls data in focus

Recent Fed minutes showed that while policymakers viewed current policy as "well positioned," some expressed readiness to tighten policy further if necessary. 

The release of U.S. consumer price index data for May and the conclusion of the Fed's two-day policy meeting are both scheduled for Wednesday.

Central banks halt bullion purchases

Recent data showed that China's central bank paused its purchases of precious metals, including gold and silver, in May, ending an 18-month buying spree that had driven the rally in precious metals.

China has been stockpiling precious metals since November 2022 to diversify its forex reserves and has simultaneously been selling U.S. treasuries at a record pace. Other major central banks have also slowed their gold imports amid surging prices.

Also Read: China's central bank to return to gold buying as prices ease, analysts say

Meanwhile, the spot gold price has also dipped 6% to $2,304 an ounce from its all-time high of $2,450 amid uncertainty over the Fed’s rate trajectory. Over the last week alone, the prices have tumbled 3%.

China plays an increasingly significant role in the global silver market, being a major player in industries such as electronics, solar energy, and manufacturing, all of which heavily utilise silver. 

In mid-May, the U.S. imposed sanctions on Chinese imports of solar cells, leading to some pressure on silver demand.

Meanwhile, base metals including copper, zinc, nickel, and aluminum have all corrected from recent highs on the back of a strengthening U.S. dollar. 

 

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.

 

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Published: 11 Jun 2024, 01:20 PM IST
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