Last week’s silver rally faltered just below the July high of $31.76, as traders booked profits on Monday. The US Dollar Index rose 0.3%, supported by weak economic data from Germany and the Eurozone, which reduced demand for silver in dollars.
While gold reached an all-time high, silver could not maintain its momentum. The stronger dollar led to selling, leaving silver vulnerable around the psychological $30 level. A break below this threshold could cause further downward pressure.
Impact of Fed rate cuts and Chinese monetary policy
The Federal Reserve’s recent 50 basis point rate cut initially fueled a “fear of missing the rally” for silver, but that sentiment has cooled. The market is now facing consolidation as investors consider the possibility of further US interest rate cuts. Fed policy remains a key driving force, with speculation about another possible cut this year adding to market uncertainty.
Meanwhile, China’s decision to leave key interest rates unchanged has added a layer of unpredictability. Following the Fed’s aggressive rate cut, markets had expected China to cut rates to stimulate its struggling economy, which has been plagued by a long-term real estate crisis and weak consumer demand. However, the People’s Bank of China kept prime interest rates for both one and five years stable at 3.35% and 3.85% respectively.
The unexpected move raised fears that China’s economic growth could remain sluggish despite earlier interest rate cuts aimed at boosting investment. Recent economic data showed disappointing growth in retail sales, industrial production and urban investment, with house prices falling at the fastest pace in nine years. With Chinese demand for silver, especially for industrial use, already weak, the ongoing economic slowdown poses additional challenges to the metal’s prospects.
Short term market forecast
In the short term, silver appears vulnerable to further downward pressure, especially if the US dollar continues to rise and economic problems in China deepen. The $30 level remains a critical psychological threshold; Should prices fall below this, further declines towards $28.98 are possible. However, continued geopolitical tensions and expectations of further US interest rate cuts could provide some support, keeping the metal in a consolidation phase rather than a sharp sell-off.