Silver Price Forecast: XAG/USD holds $27 as Fed looks set to cut interest rates in September

Silver price clings to gains above $27.00 as Fed rate cuts in September seems imminent.
Investors divided over size of Fed’s interest-rate cuts in September.
Fears of global slowdown have been diminished by lower US jobless claims and China’s hot inflation data.

Sagar Dua FXStreet

Silver price (XAG/USD) holds onto gains above the crucial support of $27.00 in Friday’s New York session. The white metal clings to gains as a move towards policy-normalization from the Federal Reserve (Fed) seems certain in September. However, investors divide over the size of interest-rate cuts.

According to the CME FedWatch tool, 30-day Federal Funds Futures pricing data shows that traders see a 56.5% chance that interest rates will be reduced by 50 basis points (bps) in September. The likelihood of 50 bps rate cuts has dropped in a week as fears of global slowdown have diminished after lower-than-expected United States (US) Initial Jobless Claims and hot China’s Consumer Price Index (CPI) data for July.

The US Dollar (USD) exhibits a subdued performance as Fed rate cuts in September seems certain. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, corrects to near 103.15 from four-day high of 103.50. 10-year US Treasury yields slump to near 3.93%.

Historically, lower yields on interest-bearing assets bodes well for the Silver price. But in this case the Silver price is slightly down as investors worry about its global demand as a metal, with application in various industries.

Silver technical forecast

Silver price declines toward the horizontal support plotted from 4 December 2023 high of $25.90 on a daily timeframe. The asset hovers near the 200-day Exponential Moving Average (EMA) around $26.90, suggesting that the overall trend is uncertain.

The 14-day Relative Strength Index (RSI) attempts to return inside the 40.00-60.00 range. A bearish momentum would conclude if the RSI (14) manages to do so.

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.

AUD/USD remains depressed 0.7000, awaits FOMC Minutes

AUD/USD struggles to capitalize on its recent recovery move and trades with a negative bias below 0.7000 in Wednesday's Asian session. Amid geopolitical uncertainty, the US Dollar attracts some dip-buyers after a fresh leg up in US bond yields, keeping the pair under pressure despite hawkish RBA expectations. All eyes now remain on the FOMC Minutes.

USD/JPY holds firm near 158.50 ahead of Fed Minutes

USD/JPY hangs close to a one-and-a-half-week high near 158.50 in the Asian session on Wednesday, with bulls now awaiting a move beyond the 200-day SMA hurdle before positioning for further gains ahead of the FOMC Minutes. Meanwhile, a fresh leg up in US bond yields revives US Dollar demand amid geopolitical uncertainties, boosting the pair amid dovish BoJ commentary.

Gold falls as US Dollar, Treasury yields rebound ahead of Fed Minutes

Gold falls nearly 1.20% as the US Dollar and US Treasury yields resume their advance. Traders await the FOMC Minutes for fresh clues on the likelihood of another rate hike before year-end.

Crypto Today: Bitcoin, Ethereum and XRP fall liquidating $550M

Bitcoin’s correction follows a recent rejection due to supply around $87,200. Altcoins are generally in a correction trend, as Ethereum edges lower toward the next key support at $2,600 and Ripple extends its down leg near the $1.45 demand area.

Risk sentiment sours, as UK employment picture darkens

Risk sentiment is deteriorating further as we move through Wednesday. The price of Brent crude oil is now above $102 per barrel, the sell off in European stock indices is deepening, and the gold price is lower by more than 1%.

Eurozone inflation just hit 3.8%, its highest in three years. This chart shows why the ECB can’t simply hike its way out

The ECB would normally have a relatively straightforward answer to inflation running almost twice its target: raise interest rates. But these are not normal circumstances. This time, the bond market is already doing part of the tightening for it, leaving the ECB facing an increasingly difficult dilemma.