Silver (XAG) Forecast: Fed Decision Looms as Prices Retreat – Will Bulls Regain Control?

Silver Prices Dip Ahead of Crucial Fed Decision

Silver prices retreated from a two-month high as traders anxiously await the Federal Reserve’s interest rate decision. The market has shifted its focus to the Fed’s meeting, with expectations of a potentially aggressive rate cut driving sentiment. The price action suggests traders are hedging silver against gold to protect against a volatile retreat.

At 11:25 GMT, XAG/USD is trading $30.62, down $0.08 or -0.26%.

Market Anticipation Builds

Traders are pricing in a 63% chance of a substantial 50-basis-point reduction, up from 34% last week. This shift in expectations has been fueled by recent media reports, setting the stage for significant market movements. If realized, a 50-bp cut could propel silver prices beyond $31.10 per ounce, with some $31.76 to $32.52 the next potential target area.

Bullish Factors Supporting Silver

Goldman Sachs maintains a bullish outlook on gold, with a price target of $2,700 per ounce by early 2025. This optimism extends to silver, as both precious metals benefit from central bank demand and a weakening dollar. Additionally, increased ETF demand for gold is reducing available physical supply, further bolstering silver prices.

Geopolitical Tensions Add Support

Recent escalations in the Middle East, with Hezbollah threatening retaliation against Israel, have raised concerns about regional stability. This geopolitical uncertainty typically supports safe-haven assets like precious metals, potentially providing additional upward pressure on silver prices.

Economic Data and Fed Projections

August retail sales data surprised to the upside on Tuesday, rising 0.1% against expectations of a 0.2% decline. Traders will closely monitor the Fed’s economic projections and Chairman Powell’s post-meeting comments for insights into future monetary policy direction.

Market Forecast

The outlook for silver remains bullish if the Fed delivers a 50-bp cut and signals further easing. In this scenario, prices could surge above $32.52, the year’s high. However, a more modest 25-bp cut might trigger short-term profit-taking, potentially pushing prices towards the $29.50 to $28.22 support zone. Traders should prepare for increased volatility surrounding the Fed announcement and upcoming economic data releases.