Silver Price Forecast: XAG/USD strengthens as US Dollar weakens due to increase in Fed dovish bets
- Silver price gains sharply as a decline in US Personal Spending has prompted Fed dovish bets.
- This week, investors will pay close attention to the US NFP data for February.
- US President Trump is set to impose tariffs on his North American peers and China on March 4.
Silver price (XAG/USD) surges an almost 1% to near $31.50 in European trading hours on Monday. The white metal strengthens as an increase in Federal Reserve (Fed) dovish bets has weighed on the US Dollar (USD).
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, resumes its downside after a three-day upside move and slumps to near 107.00.
According to the CME FedWatch tool, there is a 77% chance that the Fed will cut its borrowing rates in June, up from 63% a week ago. In the March and May policy meetings, the Fed is almost certain to keep interest rates steady in the range of 4.25%-4.50%.
Traders have raised bets supporting the Fed to reduce its borrowing rates in June after the United States (US) Personal Spending data declined for the first time in January in two years.
For more cues on the Fed’s monetary policy outlook, investors will focus on a slew of US economic data, notably on the Nonfarm Payrolls (NFP), releasing this week.
Meanwhile, fears of US President Donald Trump’s tariffs on Canada, Mexico, and China have also increased the demand for safe-haven Silver. On March 4, Trump is poised to impose tariffs on these countries for pouring drugs into the US economy.
Silver technical analysis
Silver price recovers to near $31.50 in Monday’s European session. However, the outlook of the Silver price remains bearish as it trades below the 50-day Exponential Moving Average (EMA), which is around $31.80.
The 14-day Relative Strength Index (RSI) falls inside the 40.00-60.00 range, suggesting that the bullish momentum has faded. However, the bullish bias remains intact.
Looking down, the upward-sloping trendline from the August 8 low of $26.45 will act as key support for the Silver price around $30.00. While, the February 14 high of $33.40 will be the key barrier.
Silver daily chart
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.
