Today, silver (XAG/USD) extends its downtrend for the fourth consecutive day, hovering around $29.20 per troy ounce during Monday’s Asian trading session. The decline is primarily attributed to mounting apprehensions regarding China’s industrial appetite, given its pivotal role as the world’s largest manufacturing center.
Silver, crucial in applications ranging from electronics to solar panels and automotive components, faces significant pressure from a slowdown in China’s economic activity. This slowdown casts a shadow on the metal’s industrial demand, a critical factor influencing its market dynamics.
Despite these challenges, silver’s downside potential may be curtailed by supply constraints. Issues such as labor shortages and stringent environmental regulations have hampered mining production, resulting in tighter supplies. According to Navneet Damani, Group Senior Vice President and Head of Commodities Research at Motilal Oswal Financial Services, the Silver Institute forecasts 2024 to mark the fourth consecutive year of supply deficits.
Furthermore, silver prices could receive a boost from the dovish stance adopted by the Federal Reserve. The central bank’s accommodative policy, aimed at supporting economic recovery, tends to favor non-yielding assets like silver. Market sentiment indicates a growing expectation of a 25-basis point interest rate cut at the September Fed meeting, with the probability rising to 91.7% as per CME Group’s FedWatch Tool.
Federal Reserve Bank of New York President John Williams underscored these economic trends, emphasizing that the structural forces leading to lower neutral interest rates persist post-pandemic. “My own Holston-Laubach-Williams estimates for r-star in the United States, Canada, and the Euro area remain consistent with pre-pandemic levels,” Williams noted according to Bloomberg.
In conclusion, while challenges from China’s demand slowdown persist, silver’s market outlook remains nuanced, balancing supply constraints with supportive monetary policies, which could influence its future price trajectory.
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