Silver has endured a tough couple of days as investors switch away from the metal in the short term, resulting in the price dropping from close to $27 an ounce to below $25 an ounce in just over a week.
The same factor, the war in Ukraine, has driven first silver’s gain and now its subsequent decline. The start of the conflict saw investors flee away from equities and towards safe-haven assets such as silver.
However, some of that initial fear trading has been reversed amid hopes that the peace talks between Russia and Ukraine can deliver a swift end to the war.
Silver’s fall has then been accelerated by the more hawkish monetary policy stances being taken by central banks. First, the European Central Bank announced a phasing out of its quantitative easing measures last week and now today the Federal Reserve is expected to raise interest rates for the first time in four years.
Silver, like gold, falls out of favour during times of rising interest rates due to its lack of yield with silver’s recent decline outpacing gold a reminder of the more volatile trading conditions the sister precious metal is prone to.
How far silver will fall and indeed how quickly it can climb again are tied into two factors: the pace of central banks’ rate hikes; and the strength of demand from the industrial sector for the metal.
Any sign of central banks slowing the expected trajectory of interest rates will be supportive for silver, while the metal is a key component of photovoltaics which are only likely to increase in demand as countries speed up the pace of their energy transition. So while the short-term outlook for silver may be bearish, further out, the environment looks much more bullish.
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