Over 3% slide in silver as Fed rate hike bets drive US Dollar rally

More than 3% lost: Silver retreats on Thursday as US Dollar strength pressures precious metals.
Federal Reserve rate hike expectations strengthen after US inflation exceeds forecasts.
Non-yielding assets face further pressure from hawkish remarks by Federal Reserve officials.

Silver (XAG/USD) is down 3.04% on Thursday. Extending its decline, the metal trades near $50.15 at the time of writing. Heavy selling reflects a stronger US Dollar (USD) and mounting expectations of additional monetary tightening by the Federal Reserve (Fed), both of which undermine the appeal of precious metals.

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After reaching its highest level since April 2025, the US Dollar Index (DXY) is trading around 103.10. The index tracks the Greenback against six major currencies. Dollar strength raises the cost of Silver for foreign investors, while higher interest rates make assets that pay no yield less attractive.

October's core Consumer Price Index (CPI) increased 0.3% MoM, against a forecast of 0.2%. Headline inflation rose 0.4%, also exceeding the expected 0.3%. These latest US inflation readings strengthen expectations that monetary policy will become more restrictive.

A December Fed rate hike is now fully priced in, with markets assigning a nearly 65% probability to a further increase in January. Increasingly hawkish policymaker remarks support those expectations. On Thursday, Cleveland Fed President Beth Hammack warned that higher energy costs were passing through to other prices and said monetary policy needed to become restrictive. Fed Governor Christopher Waller had previously suggested that a 50-basis-point (bps) increase in December was possible if core inflation came in at 0.3% or above. The latest figures meet that threshold.

Losses in US equities could also intensify selling in Silver if investors unwind positions to cover losses elsewhere. Attention now turns to Friday's US Producer Price Index (PPI) release and additional Fed remarks for further signals on the interest rate outlook.

Silver: Key questions answered

What attracts investors to Silver?

Widely traded by investors, Silver has historically served both as a store of value and as a medium of exchange. It is less popular than Gold, but traders may choose it for portfolio diversification, its intrinsic value or its potential to hedge against high inflation. Investment options include physical Silver coins and bars, as well as instruments such as exchange-traded funds that track the metal's price in international markets.

What drives movements in Silver prices?

A broad range of forces can affect Silver prices. Its safe-haven role means geopolitical instability or concerns over a deep recession can lift prices, though generally less than for Gold. Lower interest rates also tend to support Silver because it pays no yield. As the metal is priced in US dollars (XAG/USD), movements in the US Dollar (USD) matter: a stronger Dollar typically restrains Silver prices, while a weaker one is likely to push them higher. Investment demand, recycling rates and mining supply can also influence prices; Silver is far more abundant than Gold.

What role does industrial demand play in Silver pricing?

With electrical conductivity among the highest of any metal, exceeding that of Copper and Gold, Silver has extensive industrial uses, particularly in electronics and solar energy. A sharp rise in demand can lift prices, whereas falling demand tends to depress them. Economic developments in the US, China and India can also drive price fluctuations. Large industrial sectors in the US and especially China use Silver in a range of processes. In India, consumer demand for Silver jewellery is another important influence on prices.

How closely does Silver track Gold prices?

Gold and Silver tend to move in the same direction. A rise in Gold prices is usually accompanied by gains in Silver, reflecting their similar safe-haven status. To assess their relative valuations, investors may use the Gold/Silver ratio: the number of ounces of Silver equivalent in value to one ounce of Gold. Some investors interpret a high ratio as a possible sign that Silver is undervalued or Gold is overvalued. A low ratio, by contrast, could indicate that Gold is undervalued relative to Silver.