Silver futures witnessed a sharp decline on Thursday, falling by Rs 8,817 to Rs 2.42 lakh per kilogram, as weaker global sentiment and a stronger US dollar weighed on precious metal prices following the US Federal Reserve's latest policy announcement.
On the Multi Commodity Exchange (MCX), silver contracts for July delivery dropped Rs 8,817, or 3.5 per cent, to settle at Rs 2,42,990 per kg, with a business turnover of 11,188 lots.
Market analysts attributed the steep fall to the Federal Reserve's decision to keep interest rates unchanged while signalling that inflation remains a concern, leading investors to reassess expectations regarding future rate cuts.
According to Gaurav Garg, Research Analyst at Lemonn Markets Desk, domestic silver prices recorded a decline of more than 3 per cent during Thursday's trading session. "The weakness in precious metals is largely due to the strengthening of the US dollar, as traders remain cautious after the hawkish June policy stance adopted by the Federal Reserve under its new Chair Kevin Warsh," Garg said. In international markets, Comex silver futures for July delivery fell by USD 2.36, or 3.34 per cent, to trade at USD 68.40 per ounce in New York.
The US Federal Reserve on Wednesday unanimously decided to maintain its benchmark interest rate in the 3.5-3.75 per cent range. However, policymakers signalled that inflation risks remain elevated, with nine of the 18 members of the Federal Open Market Committee indicating that they expect at least one rate hike before the end of the year.
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Pinky Yadav, Commodity Fundamental Analyst at Choice Broking, said silver prices remained under pressure in overseas markets after the Fed's policy statement reinforced expectations of a prolonged period of restrictive monetary policy.
"Comex silver continued to trade lower on Thursday as the Federal Reserve maintained rates but signalled increasing support for additional tightening measures while remaining focused on bringing inflation back to its target level," Yadav noted.
Analysts said expectations of higher interest rates for a longer period generally hurt demand for precious metals because they increase bond yields and strengthen the US dollar, reducing the appeal of non-yielding assets such as silver and gold.
Rajesh Palviya, Head of Research at Axis Direct, said the divergence in policymakers' views, with half of them still expecting at least one more rate increase this year, highlights the Fed's commitment to tackling inflation despite concerns about slowing economic growth.
He added that elevated inflation projections, softer GDP growth forecasts, rising Treasury yields and a stronger dollar are likely to keep pressure on bullion prices in the near term.
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