Silver Price Forecast: XAG/USD tumbles to near $38.50 as US Dollar rebounds

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Silver price slumps to near $38.50 in Wednesday’s Asian session.
Concerns about Fed independence could boost safe-haven flows and cap the Silver price’s downside.
The US July PCE Price Index report will be closely watched later on Friday.

The Silver price (XAG/USD) attracts some sellers to around $38.50 during the Asian trading hours on Wednesday. The white metal retreats from a two-week low due to some profit-taking and a stronger US Dollar (USD). Nonetheless, renewed concerns over the US Federal Reserve’s (Fed) independence might cap the downside for XAG/USD.

Traders continue to assess US President Donald Trump’s move to fire Federal Reserve (Fed) Governor Lisa Cook. Late Tuesday, Trump said that he will soon have a “majority” of his own nominees on the Fed board of governors who will back his desire to cut the interest rates. In response, Fed Governor Lisa Cook said Trump has no authority to fire her from the central bank, and she will not resign.

Trump’s action to fire Cook is seen as an effort to exert control over the Federal Reserve and potentially influence monetary policy, raising concerns over the central bank’s independence. This, in turn, could weigh on the Greenback and lift the USD-denominated commodity price.

Furthermore, rising bets of a Fed rate cut next month could underpin the white metal. Fed Chair Jerome Powell has opened the door to a rate reduction in the September meeting, but that position could become complicated if inflation pressures continue to rise. Lower interest rates could reduce the opportunity cost of holding Silver, supporting the non-yielding white metal.

All eyes will be on the release of the US Personal Consumption Expenditures (PCE) Price Index report for July, which is due later on Friday. If the reports show a hotter-than-expected inflation outcome, this could limit the Fed’s ability to lower rates, supporting the USD and dragging the Silver price lower.

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.