Silver Price Forecast: XAG/USD stays near $28.00 due to hopes of Fed rate cuts
- Silver price may appreciate due to the dovish sentiment surrounding the Fed.
- A rocket strike in the Israeli-occupied Golan Heights has supported the safe-haven Silver.
- The dismal economic outlook in China could have exerted pressure on the Silver demand.
Silver price (XAG/USD) offers its intraday gains, holding position around $28.00 per troy ounce during the European trading hours on Monday. Non-yielding assets like Silver gain ground as the latest US inflation figures have reinforced expectations that the Federal Reserve (Fed) will begin cutting interest rates in September. Additionally, signs of cooling inflation and easing labor market conditions in the United States (US) have heightened expectations of three rate cuts by the Fed in 2024.
On Friday, the US Personal Consumption Expenditures (PCE) Price Index showed a modest increase in inflation for June, offering further signs of easing price pressures. The PCE Price Index rose by 2.5% year-over-year in June, slightly down from 2.6% in May, aligning with market expectations. On a monthly basis, the PCE Price Index increased by 0.1% after remaining unchanged in May.
Additionally, the rise in safe-haven Silver is driven by concerns over a potential escalation in the Middle East following a rocket strike in the Israeli-occupied Golan Heights. Israel and the United States (US) have attributed the strike to the Lebanese armed group Hezbollah, according to Reuters.
Israel's security cabinet authorized Prime Minister Benjamin Netanyahu's government on Sunday to determine the "manner and timing" of a response to the rocket strike, which killed 12 teenagers and children on Saturday.
The grey metal might have received support from news that the Chinese government will allocate CNY 300 billion in bond funds for economic recovery. Silver, which is crucial for various industrial applications in the world’s largest manufacturing hub, China, benefits from this stimulus. However, sluggish economic activity in China has added additional selling pressure on Silver.
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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