Silver prices on the MCX plummeted to a six-week low of ₹86,620 per kilogram today, influenced by a strengthening U.S. dollar and rising Treasury yields following hawkish statements from U.S. Federal Reserve officials about potential rate cuts. The prices have been on a sharp downward trend for the past four sessions, resulting in a 5% decline.
Currently trading at ₹87,000, silver prices have dropped by 10% from their recent peak of ₹96,493 on May 29.
Federal Reserve Governor Michelle Bowman stated on Tuesday that the central bank is not ready to lower rates and is open to raising them if inflation remains high. Similarly, Fed Governor Lisa Cook mentioned that while a rate cut might be appropriate at some point, the timing is uncertain.
Following strong U.S. business activity, which reached a 26-month high in June, investors are now focusing on upcoming economic data expected this week for clues about the first rate cut.
While the likelihood of a summer rate cut appears low, investors are looking for indications of a possible rate cut in September.
In its latest meeting, the US Fed maintained the rate unchanged at a 23-year high range of 5.25% to 5.50%. Additionally, the Fed revised its earlier projection of three rate cuts, as indicated in March, down to just one, eliminating the possibility of a second rate cut.
This week, investors are closely watching key economic indicators such as the first-quarter U.S. gross domestic product (GDP) estimates scheduled for Thursday and the personal consumption expenditures (PCE) price index report to be released on Friday. A strong core PCE reading could weigh negatively on precious metals, as higher rates increase the opportunity cost of holding non-yielding bullion.
Meanwhile, U.S. consumer confidence eased in June amid worries about the economic outlook, but households remained upbeat about the labor market and expected inflation to moderate over the next year.
The robust labor market has been a key factor in enabling the Fed to maintain a more hawkish stance for longer than bond traders had anticipated. On the other hand, softer demand in top silver consumer China also weighed on sentiment, as industrial usage for the metal is likely hurt by overcapacity in solar panel manufacturing.
Disclaimer: We advise investors to check with certified experts before making any investment decisions.
