Silver Price Forecast: XAG/USD holds below $28.50 as traders shred bets on deeper Fed rate cuts

• Silver price drifts lower to $28.15 in Friday’s early Asian session, down 0.70% on the day. 

• US July Retail Sales came in better than expected, rising 1.0% MoM; Initials Jobless Claims fell to 227K last week.

• Traders will watch the Fed's Goolsbee speech and first reading of US August Michigan Consumer Sentiment Index for fresh impetus. 

Silver price (XAG/USD) edges lower to near $28.15 on Friday during the Asian trading hours. The diminishing hope for a deeper interest rate by the US Federal Reserve (Fed) in September after the recent upbeat US data weighs on the white metal. 

The encouraging US economic data on Thursday has eased fears about a potential recession in the United States and reduced the speculation of an agressive rate cut by the Fed in September. This, in turn, drags the white metal lower. It’s worth noting that higher interest rates generally decrease the demand for precious metals and price. 

The US Census Bureau revealed on Thursday that Retail Sales rose by 1.0% MoM in July versus -0.2% prior, better than the 0.3% increase expected. Additionally, the number of Americans filing new applications for unemployment benefits declined by 7K to 227K for the week ending August 10, lower than the market consensus of 235K and the previous reading of 234K. This is the second consecutive week in which the number of Initial Jobless Claims has been lower than expected, suggesting that labor market conditions are not as weak as the Nonfarm Payrolls (NFP) figures for July showed earlier this month. 

On Thursday, St. Louis Fed President Alberto Musalem said that he believes the time is approaching when it will be appropriate for the Fed to cut interest rates as inflation is on a path towards the 2% target. Traders will take more cues from the Fed's Austan Goolsbee speech on Friday for the US interest rate outlook. Any dovish remarks from the Fed official might provide some support to the Silver. Also, the preliminary US Michigan Consumer Sentiment Index for August, Building Permits and Housing Starts will be published later in the day. 
 

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.