Despite ongoing tensions and signs of escalation between the U.S. and Iran, silver (XAGUSD) is down by 4% on Thursday, bringing its one-month loss to 18%. Silver tends to perform well during periods of geopolitical uncertainty, although a rising U.S. Dollar Index has dragged the precious metal lower. The index tracks the value of the greenback against a basket of major currencies.
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Trade QQQ with leverageA stronger U.S. Dollar hurts silver because it makes the metal more expensive for buyers using other currencies, reducing demand and pushing prices lower.
Falling Rate Cut Odds Pressure Silver
In addition, interest rate cut odds have plummeted in recent weeks. A month ago, the most-favored outcome on the CME FedWatch tool at 33.7% was for two rate cuts by year-end. Those same odds are now at just 2.4%, while the odds of zero rate cuts has surged to 73.2% from 8%.
Lower rates benefit silver because it doesn’t pay out interest. In other words, the opportunity cost of owning silver compared to interest-bearing assets, like Treasuries, falls when rates decline.