Silver sinks as risk-on sentiment, trade optimism weigh

• Silver retreats sharply as improved risk sentiment erodes safe-haven demand.
• Hopes for progress in US-China trade negotiations and a stronger Greenback trigger broad profit-taking in precious metals.
• Expectations of Fed interest rate cuts and lingering geopolitical risks keep the medium-term outlook supportive.

Silver (XAG/USD) sinks on Tuesday, trading around $48.70 at the time of writing, down 7.00% for the day after briefly touching an intraday low at $47.90. The sharp decline comes after the metal recently tested multi-year highs near $55, prompting investors to lock in profits amid a rebound in the US Dollar (USD) and improving market sentiment.

Renewed optimism surrounding potential trade progress between the United States (US) and China is dampening safe-haven appetite. Comments from US President Donald Trump suggesting that a "really fair and really great" trade deal could be reached at the Asia-Pacific Economic Cooperation (APEC) Summit in South Korea next week lifted risk assets globally. The perception that the threatened 100% tariffs on Chinese imports could be avoided has further fueled confidence, weighing on demand for defensive assets such as Silver.

The rebound of the US Dollar is adding to downward pressure on the grey metal. The US Dollar Index (DXY), which tracks the Greenback against a basket of major currencies, hovers near one-week highs around 98.90 on Tuesday, extending its recovery for the third consecutive day. A stronger US Dollar typically makes dollar-denominated assets like Silver more expensive for international investors, accelerating the current correction.

Nevertheless, the broader picture for Silver remains constructive. Market participants continue to anticipate an interest rate cut from the Federal Reserve (Fed), with the CME FedWatch tool showing that investors are pricing in a nearly 99% chance of a 25-basis-point rate cut at the upcoming October policy meeting. Lower interest rates tend to enhance the appeal of non-yielding assets such as Silver. In addition, the ongoing US government shutdown and lingering geopolitical risks are likely to keep safe-haven flows alive, limiting the downside in the medium term.