Market participants are poised for critical updates as the US Consumer Price Index (CPI) inflation data is set to release later on Wednesday. The non-yielding Silver, a vital industrial metal, has depreciated recently, influenced by the US labor market data which reinforced the Federal Reserve's hawkish policy stance in January. Silver prices edged lower as market sentiment turned risk-on, spurred by optimism surrounding potential gradual tariff hikes under President-elect Donald Trump's economic team.
Rising yields have propelled the US Dollar to recent highs, rendering Silver more expensive for buyers using foreign currencies and consequently dampening its demand. This price movement comes as Silver retraced its recent gains from the prior session, trading around $29.80 per ounce during the early Asian hours on Wednesday.
Silver plays a crucial role in several industrial sectors due to its high electrical conductivity, surpassing that of Copper and Gold. Industries such as electronics and solar energy heavily rely on Silver. The world's largest consumer of metals, China, could significantly boost industrial Silver usage if its economic conditions improve.
In a further boost to China's economic outlook, People's Bank of China (PBOC) Governor Pan Gongsheng emphasized the country's ongoing role as a global economic driver.
"Interest rate and reserve requirement ratio (RRR) tools will be utilized to maintain ample liquidity." – Pan Gongsheng, People's Bank of China (PBOC) Governor
China's recent stimulus measures could lead to increased industrial demand for Silver. Meanwhile, dynamics within the US, Chinese, and Indian economies also contribute to price fluctuations. Both the US and China have significant industrial sectors that utilize Silver in various processes. In India, consumer demand for Silver jewelry plays a pivotal role in setting prices.
The price of Silver often mirrors Gold's movements. Some investors monitor the ratio between these two metals as an indicator of valuation. A high ratio may suggest that Silver is undervalued or that Gold is overvalued. As a yieldless asset, Silver tends to rise when interest rates are low; however, the current economic climate presents challenges.
The market sentiment has shifted towards risk-on following reports about President-elect Trump's economic team considering a gradual increase in import tariffs. This development has boosted investor confidence, presenting additional hurdles for safe-haven assets like Silver.
Silver's movements are also closely tied to the behavior of the US Dollar (USD), as the asset is priced in dollars (XAG/USD). The recent appreciation of the USD has made Silver more costly for international buyers, further impacting demand.