Silver Price Forecast: XAG/USD rises to near $29.00 due to dovish Fedspeak

• Silver price appreciates as dovish Fedspeak increases the likelihood of an aggressive rate cut by the Fed in September.
• CME FedWatch Tool showed the likelihood of a 50 basis points rate cut has risen to 41.0%.
• The safe-haven Silver may face challenges as Middle-East tensions ease, following the withdrawal of Israeli forces from Jenin.

Silver price (XAG/USD) extends gains for the third successive day, trading around $28.90 per troy ounce during the early European hours on Friday.

The non-yielding assets like Silver may find support from the dovish comments made by Federal Reserve (Fed) officials, which enhance the chances of an aggressive rate cut by the Fed in September. Lower interest rates could make the commodity assets attractive for investors for better returns.

Chicago Fed President Austan Goolsbee said on Friday that the longer-run trend of the labor market and inflation data justify the Fed easing interest-rate policy soon and then steadily over the next year. FXStreet’s FedTracker, which gauges the tone of Fed officials’ speeches on a dovish-to-hawkish scale from 0 to 10 using a custom AI model, rated Goolsbee’s words as neutral with a score of 3.8.

According to the CME FedWatch Tool, markets are fully anticipating at least a 25 basis point (bps) rate cut by the Federal Reserve at its September meeting. The likelihood of a 50 bps rate cut has risen to 41.0%, up from 30.0% a week ago.

The potential gains for Silver might be limited due to safe-haven flows, given the recent easing of geopolitical tensions in the Middle East. Israeli forces have withdrawn from Jenin and a nearby refugee camp after 10 days of intense conflict, according to Reuters citing the Palestine news agency WAFA.

The Palestinian health ministry reported 21 fatalities in the city and camp. A Reuters observer noted that the departing Israeli forces left behind significant damage to infrastructure.

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.