Silver Price Forecast: XAG/USD depreciates toward $33.50 ahead of Fed policy decision
- Silver price pulled back from a five-month high of $34.23, reached on Tuesday.
- Silver bulls take a breather ahead of the Federal Reserve’s interest rate decision due on Wednesday.
- The strengthening US Dollar continues to create headwinds for the dollar-denominated precious metal.
Silver price (XAG/USD) retreated after reaching a five-month high of $34.23 on Tuesday, trading around $33.70 per troy ounce during European hours on Wednesday. The decline comes as Silver bulls take a breather ahead of the Federal Reserve’s (Fed) interest rate decision later in the day.
Traders will likely monitor the Fed’s updated economic projections for insights into the future trajectory of US interest rates. Higher interest rates tend to weigh on demand for non-interest-bearing assets like Silver, limiting its upside potential.
Any hawkish signals from Fed policymakers could strengthen the US Dollar (USD), making dollar-denominated Silver more expensive for buyers using foreign currencies. This could create additional headwinds for the precious grey metal.
However, downside risks for Silver price appear limited due to increased safe-haven demand driven by escalating geopolitical tensions. US President Donald Trump reaffirmed his administration's commitment to military action against Yemen’s Houthis and warned that Iran would be held accountable for any further disruptions to Red Sea shipping. Meanwhile, Israeli airstrikes in Gaza, which ended a week-long ceasefire, resulted in at least 200 casualties, according to Palestinian health authorities, as reported by Reuters.
That said, geopolitical tensions have slightly eased after President Trump and Russian President Vladimir Putin agreed on Tuesday to an immediate pause in strikes on energy infrastructure amid the Ukraine war. However, Putin declined to support a broader, month-long ceasefire negotiated by Trump’s team with Ukrainian officials in Saudi Arabia.
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.