28 Nov 2024

Silver prices are experiencing a decline as the demand for safe-haven assets wanes in light of reduced tensions in the Middle East. A ceasefire between Israel and the Lebanese militant group Hezbollah was effectively maintained on Wednesday, following negotiations facilitated by the United States and France.

The appreciation of the US Dollar poses challenges for dollar-denominated silver, as it raises the cost for buyers utilizing other currencies, which may lead to a decrease in demand. Currently, silver prices (XAG/USD) are extending their losses for the second consecutive day, trading at approximately $29.90 per troy ounce during the Asian trading session on Thursday. The recent drop in silver prices can be linked to the diminishing safe-haven flows amid the easing geopolitical situation in the region.

While the ceasefire has enabled residents in the border areas, who have suffered from 14 months of conflict, to start returning home, Israel continues its military actions against Hamas in the Gaza Strip, as reported by Reuters.

The value of dollar-denominated silver has been under significant downward pressure recently, primarily due to the strengthening of the US dollar (USD). This trend is largely influenced by the Federal Reserve's (Fed) cautious stance on interest rate cuts, especially in light of the strong inflation data that was released on Wednesday. The report highlighted robust consumer spending growth for October, which, while positive, also indicated a stagnation in efforts to curb inflation. This situation has kept the Fed on high alert, as they navigate the complexities of monetary policy in a fluctuating economic landscape.

In October, the US Personal Consumption Expenditures (PCE) Price Index, a key measure of inflation, rose by 2.3% year-over-year, marking an increase from the 2.1% recorded in September. This uptick in inflation is significant as it suggests that price pressures are not easing as quickly as some may have hoped. Additionally, the core PCE Price Index, which excludes the more volatile categories of food and energy, saw an increase to 2.8%, slightly above the 2.7% noted in the previous month. Both of these metrics aligned with market expectations, reinforcing the notion that inflationary pressures remain persistent within the economy.

The demand for non-yielding silver has also been affected by positive sentiment in the bond market, particularly following the appointment of Scott Bessent as the new US Treasury Secretary in the upcoming administration. Bessent's approach has been characterized by a preference for gradual trade restrictions and a willingness to engage in negotiations regarding tariff levels in collaboration with President-elect Donald Trump. This shift in leadership and policy direction has contributed to a more favorable outlook for bonds, which in turn has diminished the appeal of non-yielding assets like silver.

Silver traders are currently scrutinizing the recent minutes from the Federal Open Market Committee's (FOMC) policy meeting that took place on November 7. These minutes revealed that policymakers are adopting a cautious approach towards potential interest rate cuts, citing a combination of easing inflation and a robust labor market as key factors in their decision-making process. This cautious stance suggests that the Fed is not in a hurry to adjust rates, which could further impact the attractiveness of silver as an investment.

According to the CME FedWatch Tool, futures traders are now estimating a 68.1% probability that the Fed will implement a quarter-point rate reduction in December, a notable increase from the 59.4% probability just a day earlier. However, the prevailing sentiment among traders is that the Fed is likely