What factors support a bullish outlook for silver?
The Federal Reserve’s dovish stance is a key bullish driver. Fed Governor Christopher Waller indicative of three to four rate cuts by 2025 could reduce the opportunity cost of holding non-yielding assets like silver. Historically, precious metals perform well during periods of monetary easing as investors turn to inflation hedges.
Recent inflation data support this case. The CPI rose just 0.2% monthly and annual inflation fell to 3.2%, giving the Fed more flexibility to pursue accommodative policy. Falling government bond yields – down 13 basis points on the 10-year rate and 10 basis points on the 2-year rate – are reducing the appeal of fixed-income investments, potentially driving capital toward precious metals.
A weaker US dollar, often a byproduct of interest rate cuts, would also boost silver by making it cheaper for international buyers. Furthermore, China’s GDP growth of 5%, in addition to improving industrial and retail sales, indicates rising demand for industrial silver, especially as the country stabilizes its real estate market.
What are the main risks for silver prices?
Despite these tailwinds, several risks could limit silver’s upward trend. Strong U.S. retail spending and rising business confidence, as evidenced by the Philadelphia Fed survey, indicate economic resilience. This strength could reduce the urgency for aggressive rate cuts, limiting silver’s appeal.
The dollar’s strength, buoyed by incoming Treasury Secretary Scott Bessent’s commitment to maintaining its global dominance, could also weigh on silver. A stronger dollar makes silver more expensive for international buyers, dampening demand.
In addition, China’s demographic problems, including a third year of population decline, could dampen demand for industrial silver in the long term. If markets have misjudged the Fed’s willingness to cut rates, silver may face renewed selling pressure.