Silver Price Forecast: XAG/USD remains under pressure near $63 ahead of Fed’s policy decision
- Silver price drops to near $63.14 ahead of the Fed’s monetary policy announcement on Wednesday.
- The Fed is certain to raise interest rates by 25 bps to 3.75%-4.00%.
- Investors will pay close attention to Fed’s commentary on inflation and the economic outlook.
Silver price (XAG/USD) is marginally lower to near $63.14 during the European trading session on Tuesday. The white metal remains under pressure as investors shift their focus to the Federal Reserve’s (Fed) monetary policy announcement on Wednesday.
According to the CME FedWatch tool, there is a 92% chance that the Fed will hike interest rates by 25 basis points (bps) to 3.75%-4.00%. This will be the first monetary policy adjustment by the Fed this year after maintaining the status-quo in the previous five policy meetings.
Theoretically, higher interest rates by the Fed boost yields on interest-bearing assets, which diminish the appeal of non-yielding assets, such as Silver.
Hawkish Fed expectations have prompted US Treasury Yields significantly. 10-year US Treasury Yields have posted a fresh multi-year high near 5.03%.
In the policy meeting, investors would pay more attention to commentary on inflation and economic outlook to assess Fed’s monetary policy path, knowing from Chairman Kevin Warsh’s past that he won’t deliver so-called forward guidance.
Fed seen hiking in September but stopping after one move
Economists at ING explain that they have "changed our view to a 25bp Federal Reserve rate hike in September in the wake of Chair Kevin Warsh’s address at the Jackson Hole symposium," adding that "the data since then has justified that decision." While they acknowledge that "ordinarily the assumption is that if the Fed hikes, they don’t just go once," and that "financial markets are now pricing two and a half further rate hikes after the all-but-assured 16 September move," the ING team argues that "this time around we think that one and done might be the case," with their projections for jobs and inflation suggesting "no need for a series of hikes."
Silver Technical Analysis
In the daily chart, XAG/USD trades at $63.09. The pair holds below the 20-day Exponential Moving Average (EMA) at $65.12, keeping the near-term bias tilted lower as recent gains have been rejected beneath this dynamic resistance. The Relative Strength Index (RSI) at 44.4 hovers just under the neutral band, suggesting subdued bullish momentum and leaving the metal vulnerable while it fails to reclaim the short-term EMA cap.
On the topside, initial resistance is defined by the 20-day EMA at $65.12, and a daily close above this barrier would be needed to ease the current downside pressure and open the way toward higher levels. Looking down, the August 19 low at $62.19 seems key support level.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Silver FAQs
Silver is a precious metal highly traded among investors. It has been historically used as a store of value and a medium of exchange. Although less popular than Gold, traders may turn to Silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during high-inflation periods. Investors can buy physical Silver, in coins or in bars, or trade it through vehicles such as Exchange Traded Funds, which track its price on international markets.
Silver prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can make Silver price escalate due to its safe-haven status, although to a lesser extent than Gold's. As a yieldless asset, Silver tends to rise with lower interest rates. Its moves also depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong Dollar tends to keep the price of Silver at bay, whereas a weaker Dollar is likely to propel prices up. Other factors such as investment demand, mining supply – Silver is much more abundant than Gold – and recycling rates can also affect prices.
Silver is widely used in industry, particularly in sectors such as electronics or solar energy, as it has one of the highest electric conductivity of all metals – more than Copper and Gold. A surge in demand can increase prices, while a decline tends to lower them. Dynamics in the US, Chinese and Indian economies can also contribute to price swings: for the US and particularly China, their big industrial sectors use Silver in various processes; in India, consumers’ demand for the precious metal for jewellery also plays a key role in setting prices.
Silver prices tend to follow Gold's moves. When Gold prices rise, Silver typically follows suit, as their status as safe-haven assets is similar. The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, may help to determine the relative valuation between both metals. Some investors may consider a high ratio as an indicator that Silver is undervalued, or Gold is overvalued. On the contrary, a low ratio might suggest that Gold is undervalued relative to Silver.
Recommended Articles
