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Silver Price Forecast: XAG/USD loses traction below $31.50 as Fed officials signal cautious path for rate cuts

  • Silver price attracts some sellers to near $31.20 in Thursday’s early European session, down 0.30% on the day. 
  • The cautious approach to rate cuts by the Fed drags the Silver price lower.
  • Rising industrial demand for Silver might help limit its losses. 

The Silver price (XAG/USD) drifts lower to around $31.20, snapping the two-day winning streak during the early European session on Thursday. The cautious stance on cutting rates by the Federal Reserve (Fed) weighs on the white metal. 

Federal Chair Jerome Powell said on Wednesday that the US economy’s strength means the US central bank can afford to be a little more cautious” about decisions on rate moves. Joseph Brusuelas, chief economist at RSM US, noted that he doesn’t expect further rate cuts after the December meeting until March 2025 at the earliest. 

The rising bets of less aggressive Fed rate cuts could support the Greenback and undermine the USD-denominated commodity price. The markets are now pricing in a 76% chance that the central bank would cut rates by a quarter point at its December 17-18 meeting, according to the CME FedWatch tool.

On the other hand, the silver market is expected to experience a supply deficit for the fourth consecutive year due to robust demand. This, in turn, might provide some support to the Silver price. Carsten Fritsch, a precious metals analyst at Commerzbank, said, “Silver demand for photovoltaics has more than doubled in the last three years and now almost equals the demand for bars and coins.” Fritsch added that the rising industrial demand is likely to boost physical silver demand this year, reaching its second-highest level after 2022.

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.

Author

Lallalit Srijandorn

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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