Silver Price Forecast: XAG/USD holds gains above $46.50 due to Fed rate cut bets
- Silver price reached a fresh 14-year high of $46.64 on Monday.
- The US August inflation report increased the likelihood of the Fed delivering another interest rate cut in October.
- The grey metal gains as safe-haven demand rises on potential US government shutdown.
Silver price (XAG/USD) is trading around new 14-year high of $46.64, marked during the Asian hours on Monday. The non-interest-bearing Silver attracts buyers as the US August inflation report boosts the odds of the US Federal Reserve (Fed) delivering another interest rate cut in October.
It is worth noting that investors could put their bets on precious metals including Silver in terms of gaining better investment returns. Markets are now pricing in nearly an 89% chance of a Fed rate cut in October and a 66% possibility of another reduction in December, according to the CME FedWatch Tool.
The US Personal Consumption Expenditures (PCE) Price Index climbed 2.7% year-over-year in August, compared to 2.6% prior. This figure was in line with analyst forecasts. The core PCE, which excludes food and energy prices, came in at 2.9% YoY during the same period, also matching expectations.
Silver price also receives support from increased safe-haven demand as traders brace for shutdown risks of the United States (US) government. US President Donald Trump will meet congressional leaders on Monday to discuss government funding. Without a deal, a shutdown could begin from October 1, coinciding with new tariffs on trucks, pharmaceuticals, and more. The standoff could also delay the September payrolls report and other key data, per Reuters.
The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is losing ground and trading around 98.00 at the time of writing. The dollar-denominated Silver draws support as weaker Greenback makes it more affordable for foreign buyers.
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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