Silver (XAG) Forecast: No Boost from China’s Stimulus, Silver Weakens on Fed Caution

Silver Faces Bearish Pressure as Fed’s Caution, Trump’s Re-Election, and China’s Stimulus Weigh on Market

Silver futures traded slightly lower on Friday, remaining within Thursday’s price range as traders assessed multiple factors, including the Federal Reserve’s recent rate cut, potential inflationary impacts from Donald Trump’s re-election, and China’s ambitious new stimulus package. The week also saw spot gold fall 1.7%, marking its most significant weekly decline in over five months, further pressuring silver prices. Spot silver is lower by 2.19% this week.

Federal Reserve’s Rate Cut and Cautious Stance

The Federal Reserve’s recent 25-basis-point rate cut lowered the federal funds rate to a range of 4.5%-4.75%, as expected. Fed Chair Jerome Powell’s cautious approach toward further cuts, however, signaled that the central bank may not be in a rush to ease monetary policy. This tempered expectations of additional cuts, despite traders largely anticipating one more 25-basis-point reduction in December, with a 75% probability according to the CME FedWatch Tool. For January, the tool shows a strong 71% chance of a pause.

Higher interest rates typically reduce the appeal of non-yielding assets like silver, exerting downward pressure. Market participants remain wary of inflation risks tied to Trump’s re-election, as potential tariffs could drive inflation higher, which may deter the Fed from pursuing aggressive rate cuts. This mixed outlook has traders hesitant, with many adopting a “buy the rumor, sell the fact” stance in anticipation of higher inflation while remaining cautious on near-term silver gains.

China’s $1.4 Trillion Stimulus Faces Tariff-Related Uncertainty

China has introduced a $1.4 trillion stimulus package, aimed at bolstering local governments and stabilizing its economy over the next five years. This comprehensive package allocates 6 trillion yuan ($840 billion) directly to regional governments to address their so-called “hidden” debt, with 2 trillion yuan distributed annually. Additionally, China plans to issue 800 billion yuan in special bonds annually through 2026, bringing the total package to around 10 trillion yuan.

While this massive financial commitment reflects Beijing’s resolve to support its economy, especially in light of the property sector slump, the outlook remains clouded by Trump’s tariff threats. If these tariffs materialize, they could undermine Chinese demand for commodities, including silver, limiting the effectiveness of China’s stimulus on global markets. Although Beijing’s policies have focused on boosting the property sector and reducing local government debt, the combined effects of tariffs and debt management constraints could mean lower-than-expected demand for silver from the world’s largest commodities market.

Physical Demand Remains Subdued

Physical demand for silver and gold has softened in key markets, with Indian buyers, for instance, delaying purchases due to price volatility following the recent festival season. In Japan and Singapore, demand remains moderate, reflecting broader hesitation in committing to higher price levels for precious metals. This subdued demand compounds pressure on silver prices as traders weigh the broader impacts of uncertain global economic conditions.

Technical Outlook: Bearish Momentum for Silver Prices

The technical setup for silver remains bearish, with prices currently testing key support at the 50-day moving average of $31.41 and additional support at $30.67. Resistance remains a challenge at $32.49, with the Fed’s measured approach and inflation expectations under Trump’s administration likely to prevent a break above this level in the near term.

Short-Term Forecast

Silver faces ongoing downside risk as cautious Fed guidance, inflationary pressures from potential U.S. tariffs, and the uncertain effectiveness of China’s stimulus combine to weigh on sentiment. Without robust U.S. economic data that supports further Fed easing, silver is likely to consolidate or test lower support levels through December. The market outlook remains bearish, with prices potentially challenging support into year-end if current economic uncertainties persist.