Silver (XAG) Forecast: Gold’s Strength and Geopolitical Risks Boost Silver Prices

Silver Rallies Beyond Key Resistance Levels

Silver prices surged over 2% on Monday, breaking above the critical resistance at $31.54. The metal is now targeting the 50-day moving average at $31.71, a key threshold for further bullish action. If this level is decisively cleared, silver could extend gains toward the retracement zone between $32.26 and $32.87. On the downside, support levels are firm at $31.29 and $30.71, which could stabilize any corrective moves.

At 12:26 GMT, Silver (XAG/USD) is trading $31.60, up $0.63 or +2.05%.

Gold Strength and Geopolitical Turmoil Support Silver

Silver is benefiting from a parallel rally in gold, which gained over 1% and is challenging its own technical hurdles. Gold is eyeing the 50-day moving average at $2,668.27, with potential to advance toward $2,693.40. Additionally, escalating geopolitical tensions have bolstered safe-haven demand. The recent seizure of Damascus by Syrian rebels, forcing President Bashar al-Assad into exile in Russia, has ended over 50 years of Assad family rule and added fresh uncertainty to the market.

Central Banks Drive Demand for Silver

China’s central bank resumed silver purchases in November after a six-month pause, reigniting strong demand for the metal. The People’s Bank of China’s move highlights efforts to safeguard its economy amid changing global conditions, including political shifts like Trump’s election victory. This buying spree, combined with robust acquisitions by other central banks, has propelled silver to record highs this year, with a 28% year-to-date gain marking its best performance since 2010.

Focus Turns to U.S. Inflation and Fed Policy

Traders are closely monitoring the U.S. Consumer Price Index (CPI) report, scheduled for release on Wednesday, as it will provide critical insights into inflationary pressures and influence Federal Reserve policy decisions. Analysts expect the CPI to show a slight moderation in inflation, reinforcing the market’s expectations of a 25-basis-point rate cut at next week’s Federal Open Market Committee (FOMC) meeting.

However, a higher-than-expected reading could complicate the Fed’s decision-making, potentially dampening hopes for aggressive monetary easing in 2024. The Producer Price Index (PPI), due on Thursday, will also add context to inflation trends by reflecting changes in input costs. A “hot” CPI or PPI print could lead to volatility in the silver market as traders recalibrate rate expectations.

Currently, markets are pricing an 87% chance of a rate cut at the upcoming meeting, an increase from last week’s 61.6%. Despite the upward trend in Treasury yields—such as the 10-year yield edging up to 4.17%—investors are positioning for further easing, which would support zero-yielding assets like silver. Market participants also note that lower interest rates historically favor precious metals, as they reduce the opportunity cost of holding non-yielding assets and hedge against economic and geopolitical uncertainties.

Market Forecast: Upside Potential with Risks

Silver’s bullish outlook remains intact, with momentum likely to carry prices beyond $31.71 and into the $32.26-$32.87 range. However, inflation data could introduce volatility, especially if it challenges the rate-cut narrative. Traders should stay alert to the interplay between inflation, Treasury yields, and central bank actions in the coming days.

More Information in our Economic Calendar.