Let’s start by establishing a fundamental economic concept: in a total vacuum, lower interest rates benefit non-yielding assets like silver, since the opportunity cost for holding precious metals compared to cash is reduced.
So, why did the recent Federal Reserve rate cut hurt silver pricing?
The devil is, of course, in the details.
Naturally, nothing in the market is black and white; in this case, Fed Chair Jerome Powell described the cut as a ‘risk-management’ cut rather than a response to a weakening economy.
This would be a much more hawkish stance than previously thought, which, at least at first, would seriously temper expectations that this would mark the first cut of a deep-cutting cycle.
Considering the predicted trajectory of Fed interest rates before this, generally pegged at two further cuts before year-end, even the slightest suggestion that rates could be kept higher not only weakened demand for precious metals, but also simultaneously strengthened the dollar.
What’s happened since then, however, is a textbook example of reaction versus response.
