Silver Price Forecast: XAG/USD rises to near $31.00 amid dovish signals from central banks

Silver price continues to gain ground amid dovish sentiment surrounding the major central banks’ policy outlook.
The upside of the non-interest-bearing Silver could be limited amid the cautious tone surrounding the Fed.
A stronger US Dollar may create headwinds for Silver, as it increases the metal's cost for investors holding other currencies.

Akhtar Faruqui FXStreet

Silver price (XAG/USD) extends its winning streak for the third consecutive session, trading around $30.90 per troy ounce during Asian trading hours on Thursday. The precious metal holds its gains amid dovish signals from major central banks.

The Bank of Canada (BoC) has ended its quantitative tightening and joined Sweden’s Riksbank in delivering a rate cut. Meanwhile, the European Central Bank (ECB) is also expected to lower rates this week, while the Reserve Bank of India (RBI) and the People’s Bank of China (PBoC) have signaled potential rate cuts ahead.

In the United States (US), the Federal Reserve (Fed) kept its benchmark interest rate steady at 4.25%-4.50% during its January meeting on Wednesday, as widely anticipated. This follows three consecutive rate cuts since September 2024, totaling a full percentage point.

However, Silver’s upside may be capped as the Fed delivered a hawkish message by removing language suggesting confidence in inflation moving toward its 2% target. Additionally, the central bank acknowledged strong economic growth and labor market conditions.

During his press conference, Fed Chair Jerome Powell emphasized that the US central bank would need to see “real progress on inflation or some weakness in the labor market” before considering further policy adjustments.

Meanwhile, the US Dollar Index (DXY), which tracks the greenback against six major currencies, remains steady at around 108.00. A stronger US Dollar could pose challenges for Silver, making it more expensive for foreign buyers.

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

Akhtar Faruqui

FXStreet

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

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