Interest rate hikes push the silver price up

The silver price has been on an upward trend recently. In recent weeks, the silver price has risen to €23.53 per troy ounce, the highest price point of the year so far. Despite weak PMI figures published for the silver industry, the silver price continues its upward trend. The most important news this week concerning the precious metals market was the Fed's interest rate decision last Wednesday. You can read here what the impact of this is on the silver price and what economists expect regarding its further development.
 

Interest Rates

At the Federal Reserve's meeting in May, it was decided that the economic body would raise its interest rate by 0.25%. With this increase, interest rates have reached 5.25%, the highest rate in over ten years. The pace of rate hikes is also high; interest rates have not been raised this quickly in decades. What was remarkable about last Wednesday's decision was that it was unanimous. All committee members supported the proposal, while analysts had expected some members to reject it. The Fed itself stated that it believes the economy can recover well with this interest rate level.
 
The current trend of the silver price suggests that investors expect the price to continue on an upward trajectory following the rate hike. Historically, U.S. interest rates have had a significant influence on the price of silver. When the Fed changes interest rates, the silver price often enters an upward trend. The numerous rate hikes over the past year have contributed to the silver price increasing by nearly 50% since its lowest point in 2022.
 
The ECB also raised interest rates by a quarter of a percentage point this week. Europe seems to be following the Fed in this, although interest rates in Europe are still lower at 3.25%. The increase is necessary to continue curbing high inflation. Previous rate hikes were larger, but Christine Lagarde, president of the ECB, indicated that it was wise to return to a reasonably standard increase.
 

Interest Rates and Precious Metals

Falling inflation sounds like music to the ears of most people, but it can be bad news for the economy. If interest rates continue to rise and inflation keeps falling, economic growth may not be stimulated, which could lead to a recession. It would not be surprising if the Fed decides to lower interest rates later this year to avoid a recession. When interest rates fall, investing in precious metals becomes attractive. Due to the expectation of a future rate cut as a result of the current rate hike, demand for precious metals is rising.
 
Under these circumstances, silver is performing excellently. This is evident from the gold/silver ratio, which has fallen this year from 1:92 to 1:80, meaning one troy ounce of gold is now equal to 80 troy ounces of silver. This decrease is due to the strong rise in the silver price, even though the gold price also performed well this week.
 
Disclaimer: The Silver Mountain does not provide investment advice, and this article should not be considered as such. Past performance does not guarantee future results.