Silver prices extended their recent decline on Tuesday, sliding toward a two-month low as stronger-than-expected U.S. economic data reinforced expectations that the Federal Reserve will keep interest rates higher for longer. The spot price of XAG/USD fell to $22.45 per troy ounce in early afternoon trading, down 1.8% on the day and approaching the $22.30 level last seen in mid-January.
Dollar strength and rate expectations pressure silver
The primary catalyst for the sell-off was a sharp rally in the U.S. dollar index, which climbed to a three-month high after the Institute for Supply Management reported that its services PMI rose to 55.1 in February, well above the 54.3 forecast. The data suggests the U.S. economy continues to expand at a solid pace, giving the Fed room to maintain its restrictive monetary policy stance.
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According to the CME FedWatch Tool, market pricing now implies a roughly 70% probability that the central bank will raise its benchmark rate by 25 basis points at its March meeting, up from 60% a week ago. Higher interest rates increase the opportunity cost of holding non-yielding assets like silver, making the metal less attractive to investors.
Technical breakdown accelerates selling
From a technical perspective, silver’s breach of the $22.70 support level — the low from late February — triggered stop-loss orders and accelerated the decline. The next major support zone lies around $22.00, a level that has held since early December. A close below that could open the door to a test of the November 2024 low near $21.40.
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“The breakdown below $22.70 was a critical technical event,” said James Chen, an analyst at TradingPedia. “With the dollar strengthening and rate expectations rising, silver is losing its safe-haven appeal in the short term. We could see further downside if the economic data continues to come in hot.”
Silver’s decline also mirrored weakness in gold, which fell 0.9% to $1,812 per ounce, as the broader precious metals complex faced headwinds from a rising dollar and higher bond yields. The 10-year U.S. Treasury yield rose to 4.12%, its highest level since late November.
Industrial demand outlook remains mixed
While monetary policy dominates short-term price action, silver’s dual role as both a monetary and industrial metal adds complexity to its outlook. On the industrial side, the metal is a key component in solar panel manufacturing and electronics, sectors that continue to see strong demand growth. The International Energy Agency reported last month that global solar capacity additions are expected to rise by 25% in 2025, which should support silver consumption.
However, concerns about slowing economic growth in China — the world’s largest silver consumer — and the potential for reduced industrial output are weighing on sentiment. Data released last week showed China’s manufacturing PMI contracted for a second consecutive month, signaling weakness in factory activity.
Investors will now turn their attention to Fed Chair Jerome Powell’s semi-annual testimony before Congress later this week. Any hawkish signals from Powell could push silver prices toward the $22.00 support level, while a more cautious tone might trigger a short-term bounce.
