Silver Price Forecast: XAG/USD nosedives to $70 as Fed is unlikely to cut interest rates this year
- Silver price is down almost 6.5% to near $70 on intensified speculation for the Fed’s extended pause.
- The Fed is expected to keep interest rates on hold for the entire year.
- Middle East conflicts struggle to offer support to the Silver price.
Silver price (XAG/USD) plummets almost 6.5% to near $70 during the European trading session on Thursday. The white metal faces intense selling pressure as traders raise bets favoring an extended pause by the Federal Reserve (Fed).
According to the CME FedWatch tool, the collective odds of the Fed leaving the Federal Fund Rate unchanged in the current range of 3.50%-3.75% and hiking it from these levels in the December meeting are 57.5%.
The Fed holding interest rates steady for an extended period bodes poorly for non-yielding assets, such as Silver.
Speculation that the Fed will hold interest rates steady for longer intensified after the Fed’s monetary policy outcome on Wednesday, in which officials indicated that monetary policy adjustments are inappropriate unless inflation starts progressing towards the central bank’s 2% target.
“If inflation progress stalls, rate cuts will not follow,” Fed Chair Jerome Powell said in the press conference after the central bank decided to leave interest rates unchanged for the second time in a row, as expected.
Meanwhile, conflicts in the Middle East are not providing any support to the Silver price. Theoretically, demand for safe-haven assets, such as Silver, increases in a heightened geopolitical environment.
Earlier in the day, United States (US) President Donald Trump warned that he will blow up the South Pars gasfield if Iran attacks Qatar again, and said Israel will not be attacking the Iranian energy site again, Al Jazeera reported.
Silver technical analysis
XAG/USD extends its losing streak for the third trading day on Thursday and plunges to near $70.40 during European trading hours. The near-term bias turns extremely bearish as price extends its decline well below the 20-day Exponential Moving Average (EMA), which now tracks near $81.90 and caps the upside.
The 14-day Relative Strength Index (RSI) slides below 40, for the first time in 11 months, to 34.00, which points to a strong negative momentum going forward.
The next major support zone appears near the February low at around $64.00, followed by the round level of $60.00. On the upside, initial resistance emerges at the $75.00 area, with a break above exposing the 20-day EMA near $81.90 as a stronger barrier to recovery.
(The technical analysis of this story was written with the help of an AI tool.)
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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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.
