Silver Price Forecast: XAG/USD finds cushion near $29, outlook remains uncertain

Silver price finds an interim cushion near $29.25 but its outlook remains vulnerable.
Higher bond yields due to the Fed’s hawkish guidance have weighed on the Silver price.
The Fed sees only two interest rate cuts in 2025.

Sagar Dua FXStreet

Silver price (XAG/USD) finds temporary support near $29.25 on Thursday after plunging almost 4% on Wednesday. The outlook of the white metal remains bearish as the Federal Reserve (Fed) has signaled fewer interest rate cuts for 2025 after cutting them by 25-basis points (bps) to 4.25%-4.50%.

The Fed's hawkish remarks for the next year have resulted in a rally in the US Dollar (USD) and Treasury yields. The US Dollar Index (DXY), which tracks the greenback’s value against six major currencies, dropped to near 107.90 in Thursday’s European session after refreshing a two-year high of around 108.30.

10-year US Treasury yields advance above 4.50%. Higher yields on interest-bearing assets increase the opportunity cost of holding an investment in non-yielding assets, such as Silver.

The Fed’s dot plot showed that policymakers see the Federal Funds rate heading to 3.9% by 2025, suggesting two interest rate cuts next year. In the September meeting, officials had forecasted four interest rate cuts collectively.

The Fed guided a slower policy-easing cycle as the United States (US) inflationary pressures appear to have stalled in the past few months. Meanwhile, Fed Chair Jerome Powell acknowledged that strong growth in the second half of the year is a major reason to move cautiously on interest rates.

Silver technical analysis

Silver price slides to near the 200-day Exponential Moving Average (EMA), which trades around $29.40. The white metal weakened after breaking below the November low of $29.65. The asset has also tested the upward-sloping trendline around $29.50, which is plotted from the February 29 low of $22.30

The 14-day Relative Strength Index (RSI) dropped inside the bearish 20.00-40.00 range, indicating a downward trend ahead.

Looking down, the September low of $27.75 would as key support for the Silver price. On the upside, the 50-day EMA around $31.00 would be the barrier.

Silver daily chart

Silver FAQs

Why do people invest in Silver?

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.

Which factors influence Silver prices?

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.

How does industrial demand affect Silver 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.

How do Silver prices react to Gold’s moves?

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.

Author

Sagar Dua

FXStreet

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.

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