Silver Price Analysis: XAG/USD depreciates near $29.00 on concerns over China demand

• Silver prices are depreciating as the slowdown in the Chinese economy could negatively impact industrial demand for the asset.
• The grey metal could limit its downside as challenges in mine production could lead to tighter supply.
• The increasing likelihood of the Fed cutting rates could support demand for non-yielding assets like Silver.

Silver (XAG/USD) price continues its losing streak for the fourth consecutive day, trading around $29.20 per troy ounce during Asian hours on Monday. The grey metal is facing challenges due to the slowdown in the Chinese economy, the world’s largest manufacturing hub. China’s industrial demand for Silver is significant as it is essential in various applications such as electronics, solar panels, and automotive components.

However, silver could limit its fall as supply may not keep pace. “Mine production has been hit by labour shortages and environmental regulations, leading to tighter supply. As per Silver Institute estimates, 2024 is expected to be the fourth consecutive year of supply deficit,” Business Standard quoted Navneet Damani, Group Senior Vice President, Head of Commodity Research, Motilal Oswal Financial Services, as saying.

Additionally, Silver prices could also find support as dovish sentiment around the Federal Reserve’s policy stance could support demand for the non-yielding asset. Lower interest rates could attract buyers towards assets like Silver. According to the CME Group’s FedWatch tool, markets are showing a 91.7% probability of a 25 basis point rate cut at the Fed’s September meeting, up from 90.3% a week earlier.

Federal Reserve Bank of New York President John Williams said Friday that the long-term trends that caused declines in neutral interest rates before the pandemic continue to prevail. Williams noted, “My own Holston-Laubach-Williams estimates for r-star in the U.S., Canada, and the euro area are all roughly at the same level as before the pandemic,” according to Bloomberg.