Silver is benefiting from a parallel rally in gold, which has gained more than 1%, challenging its own technical hurdles. Gold is eyeing the 50-day moving average at $2,668.27, with potential to rise further towards $2,693.40. Moreover, escalating geopolitical tensions have increased the demand for safe havens. The recent capture of Damascus by Syrian rebels, which forced President Bashar al-Assad into exile in Russia, has ended more than fifty years of Assad family rule and injected new uncertainty into the market.
Central banks stimulate demand for silver
China’s central bank resumed silver purchases in November after a six-month hiatus, rekindling strong demand for the metal. The move by the People’s Bank of China highlights efforts to protect the economy amid changing global conditions, including political shifts such as Trump’s election victory. This buying frenzy, combined with robust takeovers by other central banks, has pushed silver to record highs this year, with a gain of 28% this year, marking its best performance since 2010.
The focus is on US inflation and Fed policy
Traders are closely watching the US Consumer Price Index (CPI) report, due to be released on Wednesday, as it will provide critical insights into inflationary pressures and influence Federal Reserve policy decisions. Analysts expect the CPI to show some moderation in inflation, reinforcing market expectations of a 25 basis point rate cut at next week’s Federal Open Market Committee (FOMC) meeting.
However, a higher-than-expected outcome could complicate the Fed’s decision-making, potentially dampening hopes for aggressive monetary easing in 2024. The Producer Price Index (PPI), due Thursday, will also add context to inflation trends by reflecting changes in inflation. input costs. A “hot” CPI or PPI print could create volatility in the silver market as traders realign interest rate expectations.
Currently, markets estimate an 87% chance of a rate cut at the upcoming meeting, up from last week’s 61.6%. Despite the upward trend in Treasury yields – such as the 10-year yield rising to 4.17% – investors are positioning themselves for further easing, which would support zero yields on assets like silver. Market participants also note that lower interest rates have historically favored precious metals because they lower the opportunity cost of holding non-performing assets and hedge against economic and geopolitical uncertainties.