Silver prices have managed to track gold prices higher in 2024
The past year has been remarkable for both gold and silver prices, with silver delivering an impressive return of over 30%, making it one of the standout performers in the commodities space.
While robust central bank demand has been a significant driver for gold, it plays a less prominent role for silver. Nonetheless, silver’s performance over the past year has been comparable to that of gold. Silver prices have surged by 31.2% year-on-year, closely mirroring gold’s 31.7% increase.
Recent expectations of a more hawkish Federal Reserve (Fed) policy, coupled with a stronger US dollar and rising Treasury yields, have contributed to a pullback in silver prices from their decade-high levels reached in October. However, one may argue that this retracement has not disrupted silver’s broader higher-lows formation just yet.
Has much already been priced around the hawkish Fed?
Recent positive US economic surprises have led market participants to recalibrate their rate cut expectations to lean towards only a single cut this year, which is less dovish than the previously guided median estimate of two cuts by US policymakers. Inflation risks are coming into focus, with economic data signalling for potential reflation, further underscored by anticipation of a Trump 2.0 administration.
While we may still expect Fed members to maintain their hawkish rhetoric, much around the Fed’s rate trajectory and potential Trump policies may have been largely priced for now, which leaves room for surprises. We have seen this on 6 January this week, when an unverified Washington Post report suggesting Trump might scale back tariffs triggered a more than 1% drop in the US dollar before it rebounded following his denial.
Ahead, any softer US economic data or a lack of follow-through in Trump’s policies could drive some unwinding in the US dollar or a pullback in US Treasury yields, which may offer potential tailwinds for non-yielding assets like silver.
Longer-term supply-demand prospects look supportive
The supply-demand dynamics for silver also suggest a supportive backdrop for prices. Data from Metals Focus highlights stagnating supply alongside steadily improving demand in recent years. While these trends may take time to exert a significant impact on prices, the evolving fundamentals are worth monitoring closely.
