Silver Price Forecast: XAG/USD remains below $58.00 amid Fed hawkish pause
- Silver loses ground as three FOMC policy members dissented in favor of a Fed rate hike.
- The Fed kept interest rates steady at 3.5%–3.75% despite rising inflation pressures from Middle East conflicts.
- President Trump pledged a strong military response after Iran launched a missile attack targeting US forces in Jordan.
Silver price (XAG/USD) depreciates after registering modest gains in the previous day, trading around $57.90 per troy ounce during the Asian hours on Thursday. However, Silver prices gained following the Federal Reserve’s (Fed) latest monetary policy decision, supported by expectations that other major central banks will follow a similar path.
During its July meeting, the Fed opted to leave rates steady in the 3.5%–3.75% range despite growing inflationary pressures tied to renewed conflict in the Middle East. This decision provided underlying support to Silver, as elevated borrowing costs typically dampen demand for non-yielding assets. Both the Bank of England (BoE) and the Bank of Japan (BoJ) are widely anticipated to keep interest rates on hold this week while maintaining a cautious stance on inflation.
Despite the status quo, internal disagreement was evident within the Federal Open Market Committee. Dallas Fed President Lorie Logan, Cleveland Fed President Beth Hammack, and Minneapolis Fed Chief Neel Kashkari all dissented, advocating instead for a 25-basis-point rate increase. In his post-meeting press conference, Fed Chairman Kevin Warsh reinforced a firm tone, noting that while the central bank will refrain from offering explicit forward guidance on future rate adjustments, it remains committed to using all necessary tools to bring inflation back to its 2% target.
The Fed Monetary Policy Statement scores 7.4/10 on the FXS Speechtracker, a clear hawkish tilt relative to the historical average of 4.9/10. By holding the key overnight rate at 3.50%-3.75% while stressing elevated inflation, solid economic activity, and strong productivity and investment, the Fed signals confidence in growth and a firm commitment to price stability. The 9-3 split vote, with three presidents favoring a 25-basis-point hike, underscores latent tightening bias that is supportive of the Dollar on a medium-term horizon.
The FXS Fed Sentiment Index was unchanged, moving 0.00 points to a still-elevated 128.64, confirming that the overall policy tone remains firmly in hawkish territory. The combination of a high FXS Fed Sentiment Index level and an above-baseline FXS Speechtracker score suggests the Fed continues to lean toward restrictive policy, a backdrop that should keep Dollar dips relatively shallow against the Euro and Yen.
Meanwhile, escalating geopolitical tensions in the Middle East continue to influence global markets. President Donald Trump pledged a decisive response following a recent attack on US forces in Jordan. Diplomatic efforts remain stalled as both sides struggle to reach a compromise, largely due to Tehran’s insistence on retaining control over the strategically vital Strait of Hormuz.
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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