Silver Price Forecast: XAG/USD slumps to near $42.00, investors brace for Fed rate decision
- Silver price falls to near $42.05 in Wednesday’s Asian session.
- The white metal edges lower due to some profit-taking and easing US-China tensions.
- Economists expect the Fed to deliver a 25 bps rate cut at the conclusion of its two-day meeting on Wednesday.
The Silver price (XAG/USD) tumbles to around $42.05 during the Asian trading hours on Wednesday. The white metal retreats from a 14-year high of nearly $42.80 amid some profit-taking. Traders brace for the US Federal Reserve (Fed) interest rate decision later on Wednesday for fresh impetus.
Some profit-taking and improved risk sentiment amid easing trade tensions between the US and China drag the safe-haven assets like Silver lower. The world’s two largest economies are trying to prevent further breakdown in relations after years of tariffs under US President Donald Trump. Trump recently extended existing tariffs on Chinese goods, totaling about 55%, until November 10.
However, the potential downside for the precious metal might be limited. The Fed is widely expected to announce it is lowering the target for its key lending rate by 25 basis points (bps). That will put it in a range of 4.00% to 4.25%, the lowest level since late 2022. Lower interest rates could reduce the opportunity cost of holding Silver, supporting the non-yielding white metal.
Markets have priced in nearly a 96% odds of a 25 bps reduction. However, the decision may not be unanimous. Several Federal Open Market Committee (FOMC) members have expressed differing views on the need for or size of a rate cut.
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. Any signs of a dovish tone from the Fed could undermine the Greenback.
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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