Silver is approaching its highest level in 14 years
Silver prices saw a noticeable jump on Wednesday to trade above the level of 44 dollars per ounce, marking their highest level since 2011 .
This record performance is the product of the interweaving of a combination of macroeconomic factors and strong industrial fundamentals.
So what are the macroeconomic drivers behind this rise of silver
1-expectations of accommodative monetary policy
The CME Group's FedWatch tool suggests that markets are pricing in a 90% probability of an interest rate cut by the Fed at the upcoming October meeting .
Lowering interest rates reduces the return on fixed-income assets such as bonds, which increases the attractiveness of non-yielding raw materials such as gold and silver, and encourages investors to shift their capital to them in search of better returns.
2-the weakening of the US dollar
The dollar index fell on Tuesday to move away from the two-week high, and since Silver is priced in dollars globally, the weakness of the US currency makes it cheaper for investors holding other currencies to buy it, which boosts global demand for it and pushes its prices higher.
3. geopolitical tensions and safe haven demand
Geopolitical tensions, primarily the Russian-Ukrainian war and US threats to impose new tariffs on Russia, have pushed investors towards safe-haven assets such as silver and gold to hedge against the uncertainty surrounding the global economy.
Fed comments and their impact on the market
Traders reassessed their expectations after the thoughtful speech delivered by Fed Chairman Jerome Powell on Tuesday.
Powell warned that the timing of the rate cut remains uncertain, calling the current situation the difficult situation facing the Fed as it tries to balance the fight against persistent inflation and protecting the labor market from further weakening .
It is worth noting that Powell noted that tariff-induced inflation has so far remained at the expected lows, which lends itself to the adoption of a less restrictive monetary position in the future .
These statements, albeit cautious, gave the market some hope for the continuation of the easing path later this year.
Industrial fundamentals: the hidden prop of silver prices
Apart from financial factors, Silver has a huge industrial demand base that distinguishes it from many assets and supports its prices, as industrial demand accounts for almost 60% of the total global demand for silver.
What are the most important sectors that help silver prices rise:
1-solar energy sector
Silver is a vital component in the manufacture of photovoltaics for solar panels due to its superior electrical conductivity.
With the global expansion of renewable energy projects, the demand from this sector is expected to continue to grow steadily.
2-electric car industry
Silver is intensively used in electric and hybrid cars, where it enters the manufacture of high-performance electrical connectors, battery management systems, vehicle chargers.
The electric car also has a significantly higher amount of silver than that used in a conventional car, which positions this segment as one of the most important drivers of future demand.
3-Consumer Electronics
Silver remains a staple in the electronics industry, from smartphones to tablets and computers.
Future forecasts:what awaits silver?
In the short term: markets will be closely watching the speeches of Fed officials this week, and we are also waiting for growth data tomorrow, as well as data on the core personal consumption expenditures (PCE) index released on Friday, which is the Fed's preferred measure of inflation.
Any more obvious signals about the course of interest rates will inevitably affect market trends.
Long-term: forecasts indicate that the silver market will remain in deficit for the fifth consecutive year, as global demand exceeds available supply.
Industrial demand, especially from the Clean Energy and digital transformation sectors, continues to grow, while supply constraints remain, giving strong support to prices in the medium and long term.
