Silver Price Forecast: XAG/USD rises above $29.50 amid thin trading activity

• Silver price gains ground as trading activity remains subdued before the Christmas holiday.
• The non-yielding Silver may struggle as traders factor in only two rate cuts next year.
• Concerns about potential tariffs from the incoming Trump administration have heightened fears of weakened industrial demand for Silver.

Silver price (XAG/USD) extends its winning streak for the third consecutive session, trading around $29.70 during the Asian hours on Tuesday. Prices of precious metals like Silver are supported probably due to thin trading activity before the Christmas holiday. Additionally, soft US PCE data have tempered inflation concerns, presenting a mixed outlook for the economy, which benefits non-yielding assets like Silver.

However, Silver prices may receive downward pressure as traders continue to assess the Federal Reserve’s (Fed) outlook for 2025, factoring in only two rate cuts in 2025 after Fed policymakers signaled fewer interest rate cuts next year due to a slowdown in the disinflation process.

According to the CME FedWatch tool, markets now anticipate a nearly 93% probability that the Federal Reserve will keep interest rates unchanged in January, maintaining the current range of 4.25%–4.50%.

Potential tariffs from the incoming Trump administration have intensified fears of weak demand for Silver as an industrial input, causing the metal to underperform in the fourth quarter. Additionally, Chicago Fed President Austan Goolsbee stated that uncertainty surrounding Trump’s policies after taking office led him to revise his projection for 2025. While he had previously anticipated a 100-basis-point (bps) interest rate reduction, he now expects fewer cuts.

Additionally, Silver prices are facing pressure from a constrained industrial outlook, driven by overcapacity in China’s solar panel industry. This has led photovoltaic companies to participate in a government-led self-discipline program to regulate supply. Pressure on Silver prices was also noted due to concerns over a potential Yuan devaluation, in line with China’s looser monetary policy stance.

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.