10 Dec 2024

Silver prices have declined from the monthly peak of $32.28 reached on Monday.

The value of the grey metal received support in light of reports regarding possible economic stimulus initiatives from China.

However, the robust performance of the US Dollar is exerting pressure on the demand for silver priced in dollars.

**Silver Market Overview**

The price of silver (XAG/USD) has experienced a notable decline, dropping from $32.00 per troy ounce during the European trading session on Tuesday. Despite this downturn, the precious metal has found a measure of support, largely attributed to recent reports indicating potential economic stimulus measures from China, which is the world's largest consumer of raw materials.

**Chinese Economic Stimulus Measures**

Chinese authorities, as articulated by the Politburo, have signaled a shift in their economic strategy, proposing a “moderately loose” monetary policy coupled with a “more proactive” fiscal stimulus for the upcoming year. This marks a significant departure from the more conservative economic policies that characterized the previous decade. The anticipated stimulus measures are expected to bolster demand for metals, including silver, as they aim to invigorate the Chinese economy and support growth.

On Tuesday, Chinese President Xi Jinping reinforced this optimistic outlook by stating, "China has full confidence in achieving this year's economic target." He emphasized China's role as a primary driver of global economic growth and highlighted the futility of tariff wars, trade conflicts, and technological disputes, suggesting that cooperation and stability are essential for sustained economic progress.

**Impact of US Federal Reserve Policies**

In addition to developments in China, silver prices are also being influenced by growing expectations regarding the US Federal Reserve's monetary policy. Market sentiment is leaning towards the likelihood of another interest rate cut this month, with current projections indicating an approximately 89.5% probability of a 25 basis point reduction by the Fed on December 18, according to the CME FedWatch Tool. Such a move would typically support precious metals like silver, as lower interest rates reduce the opportunity cost of holding non-yielding assets.

**Challenges from a Strong US Dollar**

Despite these supportive factors, the appreciation of the US Dollar (USD) poses a challenge for silver prices. A stronger dollar makes dollar-denominated silver more expensive for international buyers, which can suppress demand. As a result, traders are exercising caution in the market, particularly in anticipation of the upcoming US Consumer Price Index (CPI) data set to be released on Wednesday. This data is crucial as it could influence the Fed's decision-making process and, consequently, the trajectory of silver prices.

**Conclusion**

In summary, while silver prices have faced downward pressure, the potential for economic stimulus in China and expectations of a rate cut by the US Federal Reserve provide a supportive backdrop for the metal. However, the strength of the US Dollar remains a significant headwind, complicating the demand dynamics