The silver price (XAG/USD) has experienced notable downside pressure, extending its losses for the second consecutive session and trading around $39.10 per troy ounce during early Asian market hours on Thursday. 

This decline reflects a combination of factors centered around improving trade deal optimism and easing monetary policy concerns, which are weighing on silver’s traditional role as a safe-haven asset. This article from Arbitics delivers expert analysis and practical takeaways on the subject.

Trade Deal Optimism Dampens Safe-Haven Demand

One of the primary headwinds for silver is the diminished safe-haven demand amid increased optimism over trade agreements. Historically, silver, alongside gold, tends to benefit when investors seek protection from geopolitical tensions and economic uncertainties. 

However, the prospect of progressive trade deals between major economies is reducing such fears, subsequently putting downward pressure on silver prices.

The Financial Times recently reported that the European Union (EU) and the United States (US) are nearing a landmark agreement to impose 15% tariffs on EU goods imported into the US. This development, while involving tariffs, is perceived as a positive step towards resolving trade disputes, fostering an environment of more predictable international commerce. 

Additionally, the US President announced a significant tariff deal with Japan, which also includes a 15% tariff on Japanese exports to the US. While these agreements might seem protectionist on the surface, markets interpret them as a sign that key trading partners are settling differences, reducing uncertainty that typically drives investors toward precious metals like silver.

Lingering Trade Risks and Negotiations

Despite progress with the EU and Japan, caution remains. Several other countries, including South Korea and India, face ongoing trade negotiations with the US, with the possibility of tariffs ranging from 15% to 50% still on the table. The lack of finalized deals with these countries keeps some risk premium in the market.

More importantly, the market is awaiting clarity on trade talks with China, a critical component given the vast economic linkages and the impact of Sino-US relations on global risk sentiment. US Treasury Secretary Scott Bessent is scheduled to meet with Chinese officials shortly, with investors closely monitoring the outcome. A successful negotiation could further weaken safe-haven demand, whereas setbacks might reverse the recent silver price declines.

Monetary Policy Outlook and Fed Independence

Silver’s price action is also heavily influenced by expectations surrounding monetary policy, particularly decisions from the Federal Reserve (Fed). The Fed’s stance on interest rates directly affects the opportunity cost of holding non-yielding assets like silver.

Markets are currently pricing in a rate hold at the upcoming Fed meeting, with the potential for rate cuts expected in October. Lower interest rates generally support precious metals by reducing real yields on bonds, making silver more attractive. However, the possibility of rate cuts remains uncertain and has been tempered by recent comments from US officials.

In a noteworthy statement late Thursday, Treasury Secretary Bessent indicated that the process of selecting a new Fed Chair is moving at a measured pace. He suggested that an announcement for the successor to Jerome Powell will likely occur in December or January, emphasizing that there is “no rush” in the decision-making. 

This signals a stable environment for the Fed’s independence and suggests that any abrupt or politically motivated monetary policy shifts may be less likely in the near term.

This easing of concerns about Fed independence has also contributed to a weaker safe-haven bid for silver. Investors are less inclined to seek shelter in precious metals when they believe that monetary policy will remain predictable and supportive of economic stability.

Technical Considerations for Silver Price (XAG/USD)

From a technical analysis perspective, silver’s retreat towards the $39.00 mark represents a critical support level. Sustained trading below this area could open the door to further declines toward $38.00 or even lower levels, given the current market sentiment.

Conversely, a rebound above the $40.00 resistance level might signal a resumption of upward momentum, possibly fueled by renewed geopolitical tensions or disappointing trade talks.

Traders should also monitor the US Dollar Index (DXY), as silver prices typically exhibit an inverse correlation with the dollar. A strengthening dollar, often spurred by hawkish Fed rhetoric or risk-on sentiment, tends to pressure silver prices lower.

Final Thoughts

In conclusion, while silver has traditionally been a safe-haven asset during periods of uncertainty, the current environment marked by trade deal optimism and a relatively stable monetary policy outlook is suppressing demand. Traders and investors should closely monitor upcoming trade negotiations and the Federal Reserve’s policy signals, as shifts in these areas could quickly alter silver’s trajectory.