Silver Price Forecast: XAG/USD advances to near $42.40 on Fed’s dovish policy outlook

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Silver price (XAG/USD) extends its Thursday’s upside move to near $42.40 during the European trading session on Friday. The white metal strengthens as the Federal Reserve (Fed) has started the monetary-easing campaign amid growing United States (US) labor market concerns.

Silver price gains further to near $42.40 as the Fed has signaled two more interest rate cuts this year.
On Wednesday, the Fed reduced interest rates by 25 bps to 4.00%-4.25%.
Investors await Fed’s Daly speech scheduled at 18:30 GMT.

On Wednesday, the Fed reduced interest rates by 25 basis points (bps) to 4.00%-4.25% and signaled through its dot plot that there would be two more in the remainder of the year.

Lower interest rates by the Fed bode well for non-yielding assets, such as Silver.

Fed Chair Jerome Powell warned of slowing US labor demand, which forced officials to support an adjustment in policy rates. Balance of risks has shifted, and I can no longer say that the labor market is solid,” Chair Jerome Powell said.

For more guidance on the US monetary policy outlook, investors await the speech from San Francisco Fed President Mary Daly, which is scheduled at 18:30 GMT. Investors would look for cues regarding the pace of interest rate cuts by the Fed in the monetary policy meeting ahead.

Silver technical analysis

Silver price faces selling pressure near the upper end of the Rising Channel formation. However, the near-term trend of the white metal remains bullish as the 20-day Exponential Moving Average (EMA) slopes higher around $40.75.

The 14-day Relative Strength Index (RSI) cools down to near 63.00, and is likely to find cushion near 60.00. A fresh bullish momentum would emerge if the RSI holds above 60.00.

Looking down, the psychological figure of $40.00 will be a key support for the Silver price. On the upside, the September 16 high of $43.00 will be a major barrier.

Silver daily chart

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.