Silver Price Forecast: XAG/USD consolidates below $31 with Fed policy in focus
|- Silver price trades sideways below $31.00 with Fed policy taking center stage.
- Market speculation for the Fed to start reducing interest rates aggressively remains firm.
- US Retail Sales surprisingly rose at a meager growth of 0.1% in August.
Silver price (XAG/USD) stays in tight range below the crucial resistance of $31.00 in Tuesday’s North American session. The white metal consolidates as investors have sidelined, focusing on the Federal Reserve’s (Fed) monetary policy decision, which will be announced on Wednesday.
The Fed is widely anticipated to start reducing interest rates. This would be the first interest rate cut decision by the Fed in more than four years. Investors will keenly focus on the likely Fed rate cut size. According to the CME FedWatch tool, the probability of the Fed reducing interest rates by 50 bps to 4.75%-5.00% in September has increased sharply to 67% from 34% a week ago.
Market speculation for the Fed pivoting to policy normalization aggressively has increased lately after the release of the softer-than-expected United States (US) annual headline Producer Price Index (PPI) data for August, published last week.
Meanwhile, the US Dollar (USD) bounced back sharply after the release of the United States (US) Retail Sales data for August. The Retail Sales data, a key measure of consumer spending, surprisingly rose but at a meager growth of 0.1%. Economists estimated the consumer spending measure to have contracted by 0.2%.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, rebounds strongly to near 101.00 after declining to near the year-to-date low around 100.50.
Silver technical analysis
Silver price is at a make or a break near $31.00 ahead of the Fed’s monetary policy decision. The white metal could a fresh upside if it manages to break above September 16 high of $31.10. The near-term outlook of the Silver price strengthens as the asset holds above the 20-day Exponential Moving Average (EMA), which trades around $29.30.
The 14-day Relative Strength Index (RSI) rises above 60.00. A fresh round of bullish momentum could occur if the oscillator sustains about this level.
Silver daily chart
Silver FAQs
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.
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.
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.
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.
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