Silver Price Forecast: XAG/USD rallies to near $30 on potential Fed rate cuts in September

• Silver price surges to near $30.00 as investors seem confident that the Fed will begin reducing interest rates in September.

• Firm Fed rate-cut bets weigh on the US Dollar and bond yields.

• Investors await the FOMC minutes release and Fed Powell’s speech at the Jackson Hole Symposium.

Silver price (XAG/USD) extends its winning spree for the fourth trading session on Tuesday. The white metal soars to near the psychological resistance of $30.00 as the Federal Reserve (Fed) is widely anticipated to start reducing interest rates from the September meeting.

Investors see the Fed begin to reduce interest rates from September amid growing risks to the United States (US) labor market. Also, Fed officials seem confident that price pressures will return to the desired rate of 2%. Firm Fed rate cuts continue to weigh on the US Dollar (USD).

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, seems vulnerable near more-than-seven-months low around 101.76. Also, 10-year US Treasury yields hover near a three-day low of around 3.86%. Lower yields on interest-bearing assets bode well for non-yielding assets, such as Silver, given that they result in lower opportunity costs of holding investments in them.

While the Fed rate cut in September appears to be a done deal, investors want to know how fast the policy-easing process would be. Recently, market participants started anticipating that the Fed could deliver a 50 basis points (bps) interest rate reduction. However, those expectations eased significantly but are still on the horizon.

For more interest rate clarity, investors await the Federal Open Market Committee (FOMC) minutes, which will be published on Wednesday and the August 22-23 Jackson Hole Symposium.

Silver technical analysis

Silver price approaches the slightly downward-sloping trendline plotted from the May 20 high of $32.50 on a daily timeframe. The white metal climbs above 50-day Exponential Moving Average (EMA) near $28.80, suggesting that the short-term trend has become bullish.

The 14-day Relative Strength Index (RSI) rises to near 60.00. A decisive break above the same would result in a bullish momentum.

Silver daily chart

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.