Silver price falls sharply amid easing geopolitical tensions, Fed policy outlook

NEW YORK (January 16) Silver (XAG/USD) trades around $89.70 on Friday at the time of writing, down 2.50% on the day, extending the corrective move that began after reaching record highs earlier in the week. The precious metal is pressured by a market environment more favorable to risk assets, which weakens its appeal as a safe haven.

The pullback in Silver prices is largely driven by an easing of geopolitical tensions. US President Donald Trump said he has stepped back from the prospect of military action after receiving assurances that killings and executions would stop. These comments help calm fears of regional escalation and encourage investors to rotate toward riskier assets, to the detriment of precious metals.

Market sentiment also improved after Donald Trump stated that he has no plans to remove Federal Reserve (Fed) Chair Jerome Powell. This stance reduces concerns over the independence of the central bank, a factor that had recently supported safe-haven demand. At the same time, the lack of immediate new tariff measures on certain strategic products contributes to easing trade tensions.

On the macroeconomic front, Silver remains under pressure from expectations of higher-for-longer interest rates in the United States (US). The latest employment data confirm the resilience of the US labor market, reinforcing the view that the Federal Reserve could maintain a restrictive monetary policy for several more months. In this context, non-yielding assets such as Silver lose attractiveness compared to still-elevated Bond yields.

Even though the current pullback reflects profit-taking and a short-term shift in sentiment, investors remain attentive to developments in the geopolitical landscape and upcoming Federal Reserve communications, which could reignite volatility in the precious metals market.

FXStreet