Silver Price Forecast: XAG/USD holds above $61.00 amid easing Fed rate hike expectations
- Silver falls as lower-than-expected August PCE inflation data drove CME FedWatch October rate hike odds down to roughly 38%.
- August core PCE rose just 0.2%, pulling annual headline inflation down to 3.4% against a 3.7% forecast.
- Further Silver gains face headwinds from elevated Treasury yields, rising oil prices, and ongoing US-Iran geopolitical tensions.
Silver price (XAG/USD) gains ground after posting losses the previous day, trading around $60.90 per troy ounce during Asian hours on Thursday. Non-yielding Silver receives support as Federal Reserve (Fed) rate hike expectations eased following softer-than-expected United States (US) inflation data released on Wednesday.
The CME FedWatch Tool indicates that markets now price in roughly a 38% chance of a Fed rate hike in October, down from nearly 51% prior to the PCE release. Attention now shifts to Friday’s US Nonfarm Payrolls (NFP) report, where consensus forecasts expect 90,000 jobs added in September with the unemployment rate remaining steady at 4.1%.
The cooling inflation expectations were driven by August US PCE price index data, which rose 0.3% against a 0.4% forecast, while core PCE increased 0.2%, missing the 0.3% consensus estimate. On an annual basis, headline PCE inflation decelerated to 3.4%, coming in well below the expected 3.7%.
However, further gains for the white metal could be capped by broader market headwinds, as elevated oil prices and Treasury yields continue to offset the support from lower rate-hike odds. Meanwhile, geopolitical uncertainty persists as the US and Iran have made little progress in negotiations, even amid signs of recovering Middle East oil flows. Markets remain cautious about the durability of this supply recovery without a formal resolution to end the conflict, especially with both Washington and Tehran claiming control over the strategic waterway.
Treasury yields also climbed to multi-decade highs amid concerns over persistent energy-driven inflation, which could prompt tighter monetary policy. The 10-year Treasury yield steadies around 5.298%, while the 30-year Treasury yield was last up nearly 4 bps to 5.633%.
US data revisions keep Fed bias tilted toward further tightening
According to TD Securities, the latest US PCE and GDP revisions were “a mixed bag,” combining “hawkish backward adjustments to growth and dovish adjustments to inflation.” However, the firm stresses that “the underlying trend is the key story,” with “robust growth with rising inflation risks” expected to “continue to dominate the Fed's outlook.” In this context, TD Securities says, “we still expect the Fed to lift rates in October, but can't discard a more gradual approach,” underscoring that the revisions have not meaningfully shifted their view on the policy path.
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.