Silver (XAG) Forecast: Can Chinese Stimulus Sustain the Silver Rally Amid Fed Hesitation?

Silver’s Divergence from Gold Fueled by Chinese Stimulus

Silver outperformed gold last week, rising 1.82% to close at $32.20, marking a significant divergence from gold, which finished lower. This move suggests that silver’s resilience stems from unique factors beyond just the broader economic indicators, notably China’s recent stimulus measures aimed at boosting industrial demand. While stronger-than-expected U.S. jobs data cast doubt on the possibility of aggressive Federal Reserve rate cuts, silver still managed to climb, driven by industrial demand and geopolitical risks.

Chinese Stimulus and Industrial Demand

One key factor behind silver’s relative strength is its industrial demand, particularly from China. The Chinese government’s stimulus measures are expected to increase manufacturing activity, supporting the metal’s industrial side. This is further highlighted by Saxo Bank’s projection that silver may see significant gains in 2024, targeting as high as $40 per ounce. The ongoing demand from sectors such as electronics and solar energy, paired with China’s economic support, gives silver an edge over gold, which is primarily driven by its safe-haven appeal.

Geopolitical Uncertainty Boosting Safe-Haven Demand

Geopolitical tensions, especially in the Middle East, continue to support silver as a safe-haven asset. The escalating conflict between Israel and Palestine has added a layer of uncertainty to global markets, driving investors toward precious metals. Although the U.S. dollar strengthened following the release of robust U.S. payroll data, silver’s dual role as both an industrial and safe-haven asset allowed it to withstand the dollar’s rise better than gold.

Fed Policy and Economic Data

The strong U.S. Non-Farm Payrolls report showed 254,000 jobs added in September, significantly surpassing expectations. This robust data dampened hopes for large Fed rate cuts, with traders now expecting only a 25-basis-point reduction in November. Rising Treasury yields and a stronger dollar pressured precious metals, but silver’s industrial demand helped offset some of this downside.

Federal Reserve Chair Jerome Powell’s cautious stance on future rate cuts, influenced by strong economic growth, is expected to limit aggressive easing. Silver traders should closely monitor upcoming Fed meetings, and additional economic data releases including Thursday’s Core CPI report, as they will play a critical role in shaping the market’s direction.

Market Forecast: Bullish Potential with Caution

Silver remains within striking distance of its 12-year high of $32.96. A sustained breakout above this level could push prices toward the next resistance at $35.40. However, downside risks remain if silver breaks below key support $30.88. The market is also bracing for potential volatility driven by ongoing geopolitical tensions and further U.S. economic data.

In the near term, silver’s strength is likely to continue, with industrial demand and safe-haven buying providing support. However, traders should remain vigilant, as shifts in Fed policy or geopolitical developments could quickly alter market sentiment.