Silver prices fell to approximately $48.10 during the early Asian session on Wednesday. This continued decline follows a dramatic drop of over 8% in the previous session, the largest since 2021, due to profit-taking and overvaluation concerns.

US-China trade tensions eased, bolstering the US Dollar and impacting Silver, a USD-denominated commodity. Despite initial threats, President Trump expressed intent for improved US-China relations, potentially affecting market dynamics.

The ongoing US government shutdown, entering its fourth week, alongside anticipated Federal Reserve interest rate cuts, may influence Silver’s appeal as a safe-haven asset. A 99% likelihood of rate cuts is predicted, which could reduce the opportunity cost of holding Silver.

Silver, less popular than Gold, still serves as a diversification tool and inflation hedge. Influencing factors include geopolitical instability, USD strength, and industrial demand, particularly in electronics and solar energy. US, Chinese, and Indian economies significantly affect Silver’s industrial demand, impacting its price.

Silver tends to mirror Gold’s price movements due to their safe-haven status. The Gold/Silver ratio is a metric for assessing relative valuations, influencing investment strategies based on perceived value disparities.

With silver currently trading sideways around the $35 mark, the market feels hesitant as we digest mixed signals on economic growth. We are closely watching for the Federal Reserve’s next move, creating an environment ripe with opportunity for traders. This price is a significant distance from the highs we have seen in previous years.

We should remember the lessons from the sharp sell-off during the Trump administration, when silver plunged over 8% in a single day after hitting a record high. That drop was triggered by heavy profit-taking and a sudden easing of trade tensions, which strengthened the dollar. It serves as a stark reminder of how quickly sentiment can turn on an over-extended asset.

Unlike that period, today’s fundamentals look different, potentially pointing towards underlying strength. The CME FedWatch tool now shows a more than 60% probability of a rate cut before year-end, which would lower the opportunity cost of holding silver. Furthermore, industrial demand remains robust, with the Silver Institute reporting record consumption in the photovoltaic and automotive sectors through the first half of 2025.

Another key indicator is the Gold/Silver ratio, which is currently sitting above 88, much higher than historical averages. We often see this as a sign that silver is undervalued compared to gold. This suggests that if a broader move into safe-haven assets occurs, silver may have more room to run.

Given the potential for a sharp move, traders could consider using options to manage risk. Buying call options or establishing bull call spreads could offer a way to capitalize on potential price increases driven by a Fed pivot or geopolitical jitters. This approach allows for upside participation while clearly defining the maximum potential loss, a prudent strategy remembering how quickly the market turned in the past.