Silver Price Forecast: XAG/USD moves sideways near $28.00 as central banks’ decisions loom

• Silver price consolidates as trades adopt caution ahead of interest rates decisions by central banks.

• Fed is expected to make no changes on Wednesday while BoJ may raise rates by ten basis points.

• A disappointing economic outlook in China weakens the Silver demand.

Silver price (XAG/USD) remains tepid on the second successive session, trading around $27.80 per troy ounce during the Asian hours on Tuesday. Traders await US Federal Reserve’s (Fed) policy decision scheduled for Wednesday.

However, the downside of non-yielding assets like Silver could be limited as the the Federal Reserve (Fed) is expected will begin cutting interest rates in September. Additionally, signs of cooling inflation and easing labor market conditions in the United States (US) have heightened expectations of three rate cuts by the Fed in 2024. Meanwhile, the Bank of Japan (BoJ) is anticipated to raise rates by ten basis points. Opinions are divided on whether the Bank of England (BoE) will start reducing borrowing costs.

Traders are anticipating key US data this week. Nonfarm Payrolls are expected to increase by 175,000 jobs in July, down from 206,000 in June. The Unemployment Rate is projected to remain steady at 4.1%, matching 2021 highs. Additionally, Average Hourly Earnings are forecasted to rise by 0.3% month-over-month.

Disappointing GDP figures and an unexpected rate cut by the People's Bank of China (PBOC) last week have added further selling pressure on Silver. Given that Silver is essential for numerous industrial applications, especially in China, the world's largest manufacturing hub, these developments have intensified concerns about demand.

Additionally, the prices of safe-haven Silver face pressure as concerns over Middle East tensions have waned. Israel has indicated that its response to a Hezbollah rocket strike in the Israeli-occupied Golan Heights on Saturday will be measured to avoid escalating into a full-scale war, according to Reuters. This stance has been further supported by a US diplomatic effort to limit Israel's response, aiming to prevent strikes on Beirut or major civilian infrastructure in Lebanon.

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.