Silver Price Forecast: XAG/USD struggles near $38.00 ahead of Fed policy
- Silver price holds losses ahead of the Fed interest rate decision due on Wednesday.
- Traders expect the Fed to leave its benchmark interest rate unchanged on Wednesday.
- Geopolitical tensions escalate following Trump’s threat to tighter deadline for Russia to end the war in Ukraine.
Silver price (XAG/USD) loses ground after registering losses in the previous two sessions, trading around $38.10 per troy ounce during the European hours on Wednesday. The price of safe-haven Silver struggles despite market caution ahead of the US Federal Reserve (Fed) interest rate decision later in the North American session.
The price of the non-yielding Silver struggles potentially due to traders’ expectations that the US Fed to keep its benchmark interest rate within 4.25%-4.50% in July. Traders are now pricing in 97% odds of no change to interest rates at the July meeting, according to the CME FedWatch tool. Higher interest rates could weigh on Silver demand, as investors seek higher-yielding alternatives. The Federal Open Market Committee (FOMC) press conference will be observed for any signs that rate cuts may start in September.
Market participants are also awaiting key economic data this week, including the Q2 Personal Consumption Expenditures (PCE) inflation report and July’s Nonfarm Payrolls, for further insight into the health of the US economy.
However, the safe-haven Silver may regain its ground amid rising geopolitical tensions, driven by US President Donald Trump’s threat to tighter deadline for Russia to end the war in Ukraine. Trump said on Tuesday that he would impose secondary tariffs of 100% on Russia if it did not make progress on ending the war within 10 to 12 days, moving up from an earlier 50-day deadline.
Meanwhile, trade optimism diminished after US-China talks in Stockholm ended Tuesday without an agreement to extend the current tariff truce. US Treasury Secretary Scott Bessent said that the two countries will continue talks over maintaining a tariff truce before the deadline in two weeks, and Trump will make the final decision on any extension.
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.
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