Silver Price Forecast: XAG/USD rises to near $27.00 due to rising odds of a Fed rate cut

Source Fxstreet
  • Silver prices appreciate as traders price in a deeper rate cut by the Fed in September.
  • CME FedWatch tool indicates 72.0% odds of a 50-basis point Fed rate cut in September, up from 11.8% last week.
  • Escalated Middle East tensions support safe-haven demand for precious metals like Silver.

Silver price (XAG/USD) halts its three-day losing streak, trading around $26.80 per troy ounce during the European session on Thursday. The prices of non-yielding assets like Silver gain ground due to the rising expectations of a US Federal Reserve (Fed) rate cut in September.

The Fed is highly expected to implement a more aggressive rate cut beginning in September, following weaker employment data from July that has heightened concerns about a potential US recession. According to the CME FedWatch tool, there is now a 72.0% probability of a 50-basis point (bps) interest rate cut by the US Federal Reserve (Fed) in September, up from 11.8% a week earlier.

Additionally, safe-haven demand for precious metals like Silver has increased due to escalating geopolitical tensions in the Middle East. CNN reported two US intelligence officials, saying that Iran and its allies are preparing for potential retaliation against Israel in response to the recent killings of a top military commander of Iran’s Hezbollah in Lebanon and a senior Hamas leader in Tehran.

Last week’s disappointing GDP figures and an unexpected rate cut by the People's Bank of China (PBOC) have added further selling pressure on Silver. Given that Silver is essential for numerous industrial applications, especially in China, the world's largest manufacturing hub, these developments have intensified concerns about demand. Traders shift their focus to Consumer Price Index data scheduled for release on Friday, to gain further impetus on the Chinese economy.

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.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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