Silver Price Up as US Dollar Retreats from 2 Year High

Silver prices climbed over 1 percent on Thursday (May 23) when the US dollar dipped from the two year peak it hit in the previous session, and as global equities declined on the back of escalating China-US trade tensions.

The dollar index, which reached its highest level in two years at 98.371 on Wednesday (May 22), lost some of its gains following the release of US weekly jobless data.

“We have seen a sharp reversal in the dollar, and that has helped,” said Suki Cooper, precious metals analyst at Standard Chartered Bank (LSE:STAN).

“After the US Federal Reserve said it would remain patient, the market has taken this as a positive cue and has started to price in the greater probability of a rate cut,” Cooper added.

Lower interest rates tend to give precious metals like silver and gold a boost, as does geopolitical turmoil, and silver was able to make upward movements on Thursday.

At the last US Federal Reserve meeting, officials agreed that the current pause on interest rate hikes could remain in place “for some time,” suggesting that policymakers see little need to adjust rates. 

Also aiding the white metal is the fact that yields are slightly lower and equity markets are down.

World shares fell as investors grew concerned that the ongoing China-US trade conflict is shifting into a technology cold war between two of the largest and most powerful economies in the world.

China continues to be unfazed by the power of the US and believes that the North American country needs to correct its “wrong actions” for trade talks to continue. This reaction follows the US’ decision to blacklist Chinese technology company Huawei Technologies (SZSE:002502).

This latest move from the US comes a week after it appeared that tensions between the two powerhouses were softening.

Meanwhile, US 10 year treasury yields dropped to their lowest level since December 2017, giving silver and gold an additional boost.

Although the ongoing trade war is currently aiding the white metal, many industry insiders believe that it could be negative for silver on a long-term basis.

“The trade war is a key price risk; while a further deterioration in US-China trade negotiations could provoke a flight to safety, any resulting slowdown in global trade or a weaker Chinese economy would affect industrial demand, which would exert downward pressures on prices,” analysts at FocusEconomics said in their latest report.

Looking forward, firms polled by FocusEconomics believe that the precious metal could reach as high as US$17.80 per ounce before the end of this year.

As of 2:48 p.m. EDT on Thursday (May 23), silver was up 1.15 percent, trading at US$14.58. 

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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.