Silver Price Forecast: XAG/USD steadies near $37.50 amid growing odds of Fed rate cut

Silver price may attract buying interest amid rising expectations of a US Federal Reserve rate cut in September.
CME’s FedWatch Tool indicates that markets are pricing in a 91.6% probability that the Federal Reserve will cut interest rates next month.
San Francisco Fed President Daly stated that while there are several reasons to begin considering rate cuts.

Akhtar Faruqui FXStreet

Silver price (XAG/USD) moves little after registering gains in the previous two sessions, trading around $37.50 per troy ounce during the Asian hours on Tuesday. The non-interest-bearing Silver may attract buyers amid growing expectations of an interest rate cut by the US Federal Reserve (Fed) in September.

According to CME’s FedWatch Tool, markets are pricing in a 91.6% chance of a Federal Reserve rate cut next month, driven by weaker labor market data that has heightened concerns over the US economic outlook.

Federal Reserve (Fed) Bank of San Francisco President Mary C. Daly said late Monday that although there are plenty of reasons to start looking at interest rate cuts, there remains plenty of uncertainty, making it difficult for Fed officials to step into rate trimming too quickly. We can't wait to be certain there is no inflation persistence, need to make a call based on what's most likely, Daly added.

Moreover, the demand of the safe-haven Silver may further appreciate due to rising concerns overthe Federal Reserve’s (Fed) independence. US Federal Reserve (Fed) Governor Adriana Kugler has given an unexpected resignation, which has provided US President Donald Trump an earlier-than-anticipated opportunity to influence the central bank. This situation allows Trump to nominate a replacement potentially more aligned with his calls for lower rates.

Silver price may find support amid rising trade uncertainties, as Trump's latest round of tariffs on exports from numerous trading partners is scheduled to take effect on August 7. Additionally, traders will closely watch the US ISM Services PMI due later on Tuesday, with expectations for an uptick to 51.5 in July from 50.8 previously.

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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