Silver Price Forecast: XAG/USD gains ground to near $41.50 as jumbo Fed rate cut bets grow

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The Silver price ( XAG/USD) trades in positive territory for the third consecutive day around $41.40 during the Asian trading hours on Tuesday. The white metal edges higher as weaker job reports in recent months have increased expectations for a jumbo rate cut from the US Federal Reserve (Fed).

Silver price edges higher to near $41.40 in Tuesday’s Asian session.
Anticipation of a Fed rate cut, coupled with geopolitical tensions, supports the Silver price.
Traders await the US August PPI and CPI inflation reports later this week for fresh impetus.

Friday’s US jobs report showed that the US Nonfarm Payrolls (NFP) rose by 22K in August. This figure followed the 79K increase (revised from 73K) recorded in July and was below the market consensus of 75K. A cooling labor market has increased expectations for a Fed rate reduction to boost hiring. Lower interest rates could reduce the opportunity cost of holding Silver, supporting the non-yielding white metal.

Additionally, geopolitical tensions and trade war concerns could boost the safe-haven flows, supporting the Silver price. “Safe haven buying is the key factor behind this surge in precious metal prices. Anticipation of a US federal rate cut, coupled with geopolitical tensions and trade war concerns, is pushing investors towards bullion," said Haresh Acharya, director of India Bullion and Jewellers Association (IBJA).

The US inflation report this week could offer more cues about the US interest rate path. The August Producer Price Index (PPI) and Consumer Price Index (CPI) will be published on Wednesday and Thursday, respectively. In case of a surprise uptick in inflation, this could underpin the US Dollar (USD) and cap the upside for the USD-denominated commodity price in the near term.

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.

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