Global precious metals markets, led by silver, experienced a sharp selloff this week as investor expectations for imminent Federal Reserve interest rate cuts evaporated. The XAG/USD (silver) pair decisively broke below the critical $73.00 support level, while gold prices in India and internationally also faced significant downward pressure.
The primary driver is a dramatic shift in monetary policy outlook. Data from the CME FedWatch Tool shows traders now assign less than a 40% chance of a Fed rate cut by September, a steep drop from over 65% just two weeks ago. This repricing follows hawkish-leaning commentary from Fed officials and robust economic data. Higher interest rates strengthen the US dollar and increase the opportunity cost of holding non-yielding assets like gold and silver.
Simultaneously, a powerful surge in oil prices is complicating the inflation narrative. Brent crude futures have surged past $95 per barrel, marking a year-to-date increase of over 30% due to geopolitical supply risks, OPEC+ output discipline, and strong demand. Rising energy costs threaten to keep inflation elevated, potentially forcing central banks to maintain a restrictive monetary stance for longer.
Technically, silver's break below $73.00 is significant, with the next major support zone seen between $70.50 and $71.00, aligning with the 200-day moving average. Momentum indicators like the RSI have dipped into oversold territory. In India, Bitcoin World data showed spot gold prices falling by approximately 1.8% to around 62,450 INR per 10 grams, influenced by the stronger dollar and a seasonal lull in local physical demand.
Despite the financial market headwinds, silver's fundamental profile retains underlying strength from industrial demand, particularly in photovoltaic cells for solar energy. The Silver Institute's 2024 report projected a fourth consecutive annual structural supply deficit. However, in the near term, the trajectory for both metals remains tightly coupled to the outlook for US interest rates and inflation, with upcoming PCE inflation data and FOMC communications being pivotal.
