Silver (XAG) Forecast: China’s Economic Woes and Stronger Dollar Weigh on Outlook

Silver Prices Dip as Dollar Strengthens, China’s Economic Uncertainty Adds Pressure

Silver prices fell on Monday, retreating after last week’s attempt to break through multi-month highs. The metal briefly tested $31.43 but failed to maintain momentum, leading to a sell-off driven by profit-taking and a stronger U.S. dollar.

At 11:46 GMT, XAG/USD is trading $30.71, down $0.47 or -1.50%.

Dollar Strength Puts Pressure on Silver

Last week’s silver rally faltered just below July’s high of $31.76, as traders locked in gains on Monday. The U.S. Dollar Index rose 0.3%, bolstered by weak economic data from Germany and the Eurozone, which reduced demand for dollar-priced silver.

While gold hit a record high, silver couldn’t sustain its momentum. The stronger dollar prompted selling, leaving silver vulnerable near the key $30 psychological level. A break below this threshold could trigger further downside pressure.

Impact of Fed Rate Cuts and China’s Monetary Policy

The Federal Reserve’s recent 50-basis point rate cut initially fueled a “fear of missing out” rally in silver, but that sentiment has cooled. The market now faces consolidation as investors weigh the possibility of further U.S. rate cuts. Fed policy remains a key driver, with speculation about another potential cut this year adding to market uncertainty.

Meanwhile, China’s decision to leave its benchmark lending rates unchanged has added a layer of unpredictability. Following the Fed’s aggressive rate cut, markets had expected China to lower rates to stimulate its struggling economy, which is plagued by a prolonged property crisis and weak consumer demand. The People’s Bank of China, however, kept both its one-year and five-year loan prime rates steady at 3.35% and 3.85%, respectively.

This unexpected move raised concerns that China’s economic growth could remain sluggish, despite earlier rate cuts aimed at boosting investment. Recent economic data showed disappointing growth in retail sales, industrial production, and urban investment, with home prices falling at their fastest pace in nine years. With China’s demand for silver, particularly for industrial use, already weak, the ongoing economic slowdown poses additional challenges for the metal’s outlook.

Short-Term Market Forecast

In the near term, silver appears vulnerable to further downside pressure, especially if the U.S. dollar continues to strengthen and China’s economic woes deepen. The $30 level remains a critical psychological threshold—should prices dip below this, further declines toward $28.98 are possible. However, continued geopolitical tensions and expectations of additional U.S. rate cuts could offer some support, keeping the metal in a consolidation phase rather than a sharp selloff.

Traders should watch the dollar’s movements closely and monitor developments in China, as these factors will play a crucial role in silver’s direction over the coming weeks.