Silver Price Forecast: XAG/USD plummets below $65 on higher-for-longer Fed interest rates narrative
- Silver price plunges to near $64.85 amid fears that the Fed could hold interest rates higher for a longer period.
- Fed members warn that strong demand is also fuelling inflationary pressures.
- The Fed is almost certain to deliver one more interest rate hike this year.
Silver price (XAG/USD) is down 1.75% to near $64.85 during the European trading session on Tuesday. The white metal is under severe selling pressure as Federal Reserve (Fed) officials warn that strong demand is also fuelling upside inflation risks alongwith higher oil prices.
Demand-driven inflation leads to the higher interest rates, which remain elevated for a longer term. This is in contrary to supply-driven inflation, such as energy supply shocks, which are considered temporary in nature and influence interest rate expectations for a limited time period.
On Monday, Chicago Federal Reserve (Fed) Bank President Austan Goolsbee said, “Strong demand may be adding to inflation along with energy, tariff, other supply shocks.”
Over the weekend, Minneapolis Fed Bank President Neel Kashkari also said high inflation remains a key concern for policymakers, adding that hot price pressures are not only fuelled by elevated oil prices.
Currently, the CME FedWatch tool shows an almost 90% chance that the Fed will deliver at least one interest rate hike this year.
Meanwhile, investors await the meeting between leaders from the United States (US) and Gulf nations at the sidelines of the United Nations (UN) General Assembly in New York, which is expected later in the day. Leaders from nations are expected to discuss possible ways to increase the oil supply through the Middle East.
Silver Technical Analysis
In the daily chart, XAG/USD trades at $64.90, keeping a bearish near-term tone as it remains capped by the 20-day Moving Average Exponential (EMA) at $65.18. Price trades close to the broken downward resistance trend line, while the Relative Strength Index (14) around 50 hints at neutral momentum that fails to offset the overhead technical barriers.
On the topside, initial resistance is located at the 20-day EMA at $65.18, which continues to limit recovery attempts in the short term. On the downside, the former resistance trend line turning into support around $64.26 is the first level to watch, as a daily close below this area would likely expose XAG/USD to renewed selling pressure.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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
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.
