Silver Price Forecast: XAG/USD extends the rally above $42.00 amid Fed rate cut expectations

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The Silver price (XAG/USD) trades in positive territory for the fourth consecutive day near $42.25 during the Asian trading hours on Monday. Expectations of a rate cut from the US Federal Reserve (Fed) weigh on the US Dollar (USD) and support the USD-denominated commodity price.

Silver Price drifts higher to around $42.25 in Monday’s Asian session.
The Fed is set to cut its Federal Funds Rate for the first time since December.
US-China talks head into the second day focused on trade and TikTok.

The Fed's benchmark interest rate is currently in the range of 4.25% to 4.50%. Markets expect the US central bank to cut interest rates at its upcoming meeting on Wednesday. This would be the first rate cut since December 2024. Lower interest rates could reduce the opportunity cost of holding Silver, supporting the non-yielding white metal.

"We are calling for a 25-basis-point cut from the FOMC this week, which is more than fully priced," said Carol Kong, a currency strategist at Commonwealth Bank of Australia. Traders will also closely monitor the FOMC press conference and a Summary of Economic Projections (SEP), or ‘dot-plot,’ for guidance on the pace of future cuts.

Nonetheless, improved risk sentiment or easing tension could drag the safe-haven assets like Silver lower. US and Chinese representatives, helmed by US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer and a Chinese official led by Vice Premier He Lifeng, discussed trade and the economy during high-level talks in Madrid.

Officials were also expected to lay the groundwork for a potential meeting between US President Donald Trump and China’s leader Xi Jinping as soon as October, when they’re scheduled to attend a summit in South Korea.

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.