Silver Price Forecast: XAG/USD extends the rally above $42.00 amid Fed rate cut expectations

• Silver Price drifts higher to around $42.25 in Monday’s Asian session.

• The Fed is set to cut its Federal Funds Rate for the first time since December. 

• US-China talks head into the second day focused on trade and TikTok. 

The Silver price (XAG/USD) trades in positive territory for the fourth consecutive day near $42.25 during the Asian trading hours on Monday. Expectations of a rate cut from the US Federal Reserve (Fed) weigh on the US Dollar (USD) and support the USD-denominated commodity price. The Fed rate decision will take center stage later on Wednesday. 

The Fed's benchmark interest rate is currently in the range of 4.25% to 4.50%. Markets expect the US central bank to cut interest rates at its upcoming meeting on Wednesday. This would be the first rate cut since December 2024. Lower interest rates could reduce the opportunity cost of holding Silver, supporting the non-yielding white metal. 

"We are calling for a 25-basis-point cut from the FOMC this week, which is more than fully priced," said Carol Kong, a currency strategist at Commonwealth Bank of Australia. Traders will also closely monitor the FOMC press conference and a Summary of Economic Projections (SEP), or ‘dot-plot,’ for guidance on the pace of future cuts.

Nonetheless, improved risk sentiment or easing tension could drag the safe-haven assets like Silver lower. US and Chinese representatives, helmed by US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer and a Chinese official led by Vice Premier He Lifeng, discussed trade and the economy during high-level talks in Madrid.

Officials were also expected to lay the groundwork for a potential meeting between US President Donald Trump and China’s leader Xi Jinping as soon as October, when they’re scheduled to attend a summit in South Korea.