Silver has extended its decline for a fourth consecutive session as shifting monetary policy expectations create headwinds for the precious metal. Market participants who had anticipated a December interest rate reduction from the Federal Reserve are now reconsidering their positions amid changing central bank signals.
Interest Rate Outlook Shifts Dramatically
Market-implied probabilities for monetary easing have undergone a significant reversal. According to the CME FedWatch Tool, the likelihood of a 25-basis-point rate cut in December has plummeted to just 43%, down substantially from 62% a week earlier. This rapid reassessment of interest rate expectations has created challenging conditions for non-yielding assets like silver.
Federal Reserve Vice Chair Philip Jefferson compounded these concerns on Monday by emphasizing the need for the central bank to proceed “cautiously” with any future rate reductions. In an environment where interest rates remain elevated or continue rising, assets that don’t offer yield become less attractive to investors compared to interest-bearing alternatives.
U.S. Designation Adds Strategic Support
Offsetting some of these monetary policy headwinds, the U.S. Department of the Interior recently classified silver as a “critical mineral,” a designation with potentially significant market implications:
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- Potential trade restrictions may be implemented
- Tariffs could be introduced
- Recognition of strategic importance to national security
- Copper and metallurgical coal also included in the classification
This development takes on added significance given that domestic production satisfies only about 30% of U.S. silver demand. Should the government implement trade measures under Section 232 authorities, similar to previous actions on steel and aluminum, medium-term price support could emerge.
Industrial Demand Shows Resilience
Despite recent price weakness, industrial consumption continues to demonstrate strength across multiple sectors. The solar industry is reporting record usage levels, electric vehicle manufacturers are maintaining robust purchasing, and strong demand signals persist from both China and India.
Market fundamentals reveal the silver market is experiencing its fifth consecutive year of structural supply deficit. Exceptionally high leasing rates and unusual delivery patterns into CME warehouses further highlight the underlying tightness in physical availability.
The critical question facing market participants is whether this substantial industrial demand can counterbalance the negative impact of shifting interest rate expectations. With the Fed minutes scheduled for release on Wednesday and additional economic data forthcoming, market volatility is likely to persist in the near term.
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