Silver Price Forecast: XAG/USD falls to near $62.00 amid Fed rate hike odds
- Silver declines as stalled US-Iran negotiations and elevated oil prices reinforce expectations for further Federal Reserve rate hikes.
- Traders await upcoming US employment and inflation data while monitoring potential Middle East military escalations.
- Hawkish comments from Fed officials strengthen the US Dollar while dampening demand for non-yielding Silver.
Silver price (XAG/USD) falls nearly 3.5% after posting modest gains in the previous day, trading around $62.00 per troy ounce during Asian hours on Monday. Non-yielding Silver struggles as stalled negotiations between the United States (US) and Iran keep oil prices elevated, reinforcing expectations that the Federal Reserve (Fed) will implement further monetary tightening to curb persistent inflation.
Traders are actively seeking fresh catalysts while keeping a close eye on Middle Eastern geopolitical developments. Market sentiment remains heavily tied to the region following US President Donald Trump’s rejection of Iran’s latest proposal to reopen the Strait of Hormuz, where he stated Tehran had overplayed its hand, though he noted discussions are expected to resume this week. Additionally, President Trump expressed confidence that the conflict would conclude soon while leaving the door open for further military strikes before the upcoming midterm elections.
Meanwhile, the Federal Reserve’s recent decision to raise its target funds rate range has bolstered the US dollar's strength against the Canadian dollar. Money markets are now pricing in a 65.9% probability of another benchmark interest rate hike at the October Fed meeting, marking a steep rise from 57.6% a week ago and just 9.4% a month ago.
Looking ahead, market participants are shifting their focus to key economic indicators scheduled for release this week. Particular attention is centered on upcoming US employment figures and the Fed’s preferred inflation metric to assess the future path of monetary policy. These expectations are further supported by recent hawkish remarks from Fed officials, including Cleveland Fed President Beth Hammack, who warned against letting the public accept elevated prices as the new normal, and Philadelphia Fed President Anna Paulson, who noted that modest additional tightening may be necessary.
USD support builds as higher yields pressure rate-sensitive assets
Strategists at OCBC note that “resilient US economic data, elevated energy prices and persistent inflation concerns continue to drive Treasury yields higher,” a backdrop that is “underpinning the USD while weighing on rate-sensitive and carry-oriented assets.” They argue that the combination of firm growth signals and sticky price pressures is keeping US rates biased higher, reinforcing Dollar strength even as it poses challenges for markets reliant on low funding costs and stable volatility.
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.