Silver Price Forecast: XAG/USD remains subdued near $28 as Fed big rate-cut bets wane
Silver price remains below $28.00 as expectations for Fed big interest-rate cut diminishes. US headline and core inflation decelerated one-tenth to 2.9% and 3.2%, respectively, in July. The next trigger for the Silver price will be the monthly US Retail Sales, scheduled for Thursday.Silver price (XAG/USD) exhibits a subdued performance near $28.00 in Wednesday’s New York session. The white metal faces pressure as market expectations for the Federal Reserve (Fed) big interest-rate cut announcement in September have waned after the release of the United States (US) Consumer Price Index (CPI) report for July.
According to the CME FedWatch tool, the probability for reduction in key borrowing rates by 50 basis points (bps) has declined to 41.5% from 54% in September after the release of the inflation report. However, the data gives a clear signal that the Fed will cut interest rates next month.
The CPI report showed that annual headline and core inflation, which excludes volatile items such as food and energy, decelerated by one-tenth to 2.9% and 3.2%, respectively. The decline in price pressures was broadly in line with market consensus. The month-on-month headline and core inflation also rose by 0.2%, as expected.
Meanwhile, the US Dollar (USD) has dropped further as the inflation data has boosted investors’ confidence that price pressures on track to return to the desired rate of 2%. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, posts fresh weekly low at 103.30.
Going forward, the next trigger for the Silver price will be the US monthly Retail Sales data for July, which will be published on Thursday.
Silver technical forecastSilver price continues to remain below the 20-day Exponential Moving Average (EMA) near $28.20, suggesting that near-term trend is bearish. While the 200-day EMA near $26.90 continues to provide support to the Silver price bulls.
The major cushion for the Silver price will be the horizontal support plotted from May 5 high at $26.14.
The 14-day Relative Strength Index (RSI) hovers near 40.00. A decisive break below the same will trigger a bearish momentum.
Silver daily chart
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.
