Silver Slips as Tariffs, Fed Outlook Hit XAG/USD Prices

Key Moments

Silver Slides After Six-Day Rally

Silver prices are giving back earlier intraday gains, bringing an end to a six-day positive streak. XAG/USD is quoted around $87.30 per troy ounce in Asian trading on Thursday, with market participants cautious ahead of key political and macroeconomic events.

Investors are focused on the planned meeting in Beijing between US President Donald Trump and Chinese President Xi Jinping. Market attention is also directed toward the US Retail Sales release for April, scheduled for later in the session, which could influence expectations around US economic momentum and interest rates.

US-China Tariff Talks and Geopolitical Backdrop

According to reports, the United States and China, the world’s two largest economies, are examining a potential framework that would reduce tariffs on approximately $30 billion of goods, excluding items linked to national security. The move is being viewed as an attempt to ease bilateral strains and foster more stable economic ties.

Despite these discussions, geopolitical tensions continue to loom large. The summit is unfolding against the backdrop of the war in Iran. Washington has stepped up pressure on Tehran by announcing new sanctions on entities involved in shipping Iranian crude to China and issuing warnings to banks that facilitate such transactions. This combination of trade diplomacy and geopolitical risk is feeding into overall risk sentiment and precious metals positioning.

India’s Tariff Hike Adds Headwind for Silver

Another factor weighing on Silver is India’s decision to sharply increase import duties on both Gold and Silver. The effective rate has been lifted from 6% to 15%, comprising a 10% Basic Customs Duty plus a 5% infrastructure cess. Authorities are aiming to support the Indian Rupee and conserve foreign exchange reserves through this measure.

Higher import costs could undermine some price-sensitive demand, but underlying consumption related to industrial uses remains a potential source of support. Demand linked to solar panel production, electronics, and automotive manufacturing is noted as an ongoing pillar for Silver consumption.

Fed Expectations and Inflation Data Pressure Non-Yielding Assets

Silver is also coming under pressure from shifting views on US monetary policy. After producer and consumer inflation readings came in hotter than anticipated, market participants are increasingly discounting the likelihood of interest rate cuts by the Federal Reserve this year.

This reassessment of the policy path is typically unfavorable for non-interest-bearing assets such as Silver, as higher-for-longer rates raise the opportunity cost of holding precious metals that do not generate income.

Silver as an Investment Asset

Silver is actively traded among investors as a precious metal. It has historically served as a store of value and medium of exchange. While it tends to be less prominent than Gold, market participants may use Silver to diversify portfolios, for its inherent value, or as a potential hedge in periods of elevated inflation. Exposure can be gained through physical holdings such as coins and bars, or via financial instruments like Exchange Traded Funds that track international Silver prices.

Key Drivers of Silver Prices

Silver pricing is influenced by a broad set of factors. Episodes of geopolitical stress or concerns about a severe economic downturn can push Silver higher due to its safe-haven characteristics, though usually to a lesser degree than Gold. As a yieldless asset, Silver tends to benefit when interest rates move lower.

Because Silver is denominated in US Dollars (XAG/USD), Dollar strength or weakness is another crucial variable. A firm US Dollar typically restrains Silver, while a softer Dollar can be supportive. Additional elements such as investment flows, mine production – noting Silver is more plentiful than Gold – and recycling levels also play roles in shaping market dynamics.

Industrial Demand and Economic Cycles

Industrial usage is a major pillar of Silver demand, particularly in electronics and solar-related applications, thanks to Silver’s very high electrical conductivity, which exceeds that of Copper and Gold. When industrial demand rises, prices can be pushed upward; conversely, a slowdown usually weighs on valuations.

Economic developments in the United States, China, and India are especially relevant. The extensive industrial bases of the US and China consume Silver across multiple processes, while in India, consumer appetite for Silver jewelry is an additional driver of demand.

Relationship Between Silver and Gold

Silver often tracks moves in Gold. When Gold advances, Silver generally tends to move in the same direction, reflecting their similar roles as safe-haven assets. The Gold/Silver ratio, which measures how many ounces of Silver equate to the value of one ounce of Gold, is monitored by some investors to assess relative value between the two metals. A high ratio is sometimes interpreted as Silver being undervalued or Gold overvalued, while a low ratio can be read as the opposite.