Silver (XAG) Forecast: Is Silver Set to Test $32.52 if the Fed Goes Big on Rate Cuts?

Silver Prices Surge on Fed Rate Cut Hopes

Silver prices surged last week, breaking above the $30.19 per ounce mark and confirming a bullish trend on the weekly charts. The rally brought key levels of $31.76 and $32.52 into focus. Optimism that the U.S. Federal Reserve is preparing to cut interest rates, coupled with a weaker U.S. dollar and strong gold inflows, fueled silver’s upward move.

Dollar Weakness and Gold Inflows Drive Silver Higher

One of the key drivers of silver’s rise was the U.S. dollar’s continued decline, which hit its lowest level of the year against the yen. A weaker dollar typically boosts silver by making it cheaper for holders of other currencies. Additionally, global gold-backed exchange-traded funds (ETFs) saw continued inflows, with the SPDR Gold Trust reaching its highest levels since January. This increased demand for gold also lifted silver prices, as the two metals often move in tandem.

Inflation Data and Jobless Claims Set Stage for Rate Cut

Several key U.S. economic reports released last week supported expectations of a Fed rate cut. The Consumer Price Index (CPI) for August showed a 0.2% rise, aligning with forecasts, while core inflation edged higher by 0.3%. The Producer Price Index (PPI) also came in at 0.2%, reflecting easing inflation pressures. Additionally, jobless claims data showed a stable labor market, with no alarming signs of weakness.

These reports reinforced market expectations that the Federal Reserve has room to cut rates without reigniting inflation concerns. As a result, the CME FedWatch tool now shows a 57% chance of a 25-basis-point cut at the upcoming Federal Open Market Committee (FOMC) meeting, with a 43% chance of a larger 50-basis-point cut. This would be the Fed’s first rate reduction since 2020, which is expected to further support silver’s rise.

Silver Closes the Week Strong

By the end of the week, silver had posted strong gains, with XAG/USD closing at $30.72, up nearly 10%. Falling Treasury yields, the dollar’s weakness and growing expectations of Fed easing kept silver prices elevated. With inflation pressures easing and central banks leaning toward rate cuts, silver’s bullish outlook remains intact.

Next Week’s Forecast: Can Silver Test the Yearly High at $32.52?

Looking ahead, silver’s performance will be closely tied to the Fed’s rate decision. A larger-than-expected 50-basis-point cut could push silver above $31.76, with the potential to test $32.52. However, if the Fed opts for a 25-basis-point cut, prices may consolidate around $30.19 or decline sharply. With key economic data now out, the Fed’s decision next week will likely be the primary driver of silver’s next major move.