Silver (XAG) Forecast: Will Inflation Concerns and Fed Policies Drive Silver Prices Higher?

Silver Climbs as Fed’s Bold Moves and Geopolitical Tensions Ignite Rally

Silver ended the week on a high, riding the coattails of a record rally in gold and significant monetary policy shifts from the Federal Reserve. A half-percentage-point interest rate cut, the most aggressive in the Fed’s current easing cycle, fueled demand for safe-haven assets like silver, while prolonged global tensions, particularly in the Middle East, kept investors cautious yet bullish.

Last week, XAG/USD settled at $31.18, up $0.46 or +1.49%.

Fed’s Aggressive Rate Cuts Power Silver’s Appeal

The Federal Reserve’s decision to cut interest rates by 50 basis points sent shockwaves through the market. Silver, which benefits from low-interest-rate environments due to its non-yielding nature, surged as the U.S. dollar weakened. Fed Chair Jerome Powell signaled further cuts ahead, including another 50-basis-point reduction by year-end. These moves reduce the opportunity cost of holding silver, driving demand even higher​​.

Exchange-traded fund (ETF) inflows, though not dramatic, supported the price movement, while demand from Asia remained subdued amid ongoing buyer reluctance​. Technical indicators show silver’s next resistance levels at $31.76 and $32.52, with potential gains towards $35.00 should momentum continue​.

Geopolitical Risks and a Weakening Dollar Sustain Gains

Geopolitical tensions, including escalating conflicts in Gaza and Ukraine, continue to bolster silver’s safe-haven appeal. Hezbollah’s involvement in the Middle East crisis raises the risk of broader regional instability, further supporting precious metals. In addition, the weakening U.S. dollar has been a key driver, making silver more attractive to investors holding other currencies​​.

The broader macroeconomic environment is also providing tailwinds. Lower U.S. Treasury yields and the dovish stance from the Fed enhance the investment case for silver, which has risen over 32% year-to-date, outperforming other commodities​.

Weekly Forecast: Silver Eyes $35 as Rate Cuts Loom

With silver firmly entrenched in an upward trend, traders will be closely watching for further rate cuts and economic data to drive the next leg of the rally. Soft U.S. economic data, including the latest retail sales figures and jobless claims, suggest more easing could be on the horizon. This would strengthen silver’s outlook, potentially pushing it past the $32.52 resistance level towards $33.00 or even $35.00​.

However, headwinds such as weakening retail demand in Asia and the possibility of reduced industrial demand from China could dampen the upside. In the near term, silver’s safe-haven demand and the Fed’s dovish stance make a continued rally likely. Expect volatile but upward-leaning price action as traders look to capitalize on dips.

With key technical and geopolitical factors aligning, the silver market is poised for further gains, although risks from the global economy and shifts in central bank policies remain present. Traders should maintain a bullish bias while keeping a close eye on upcoming Fed meetings and geopolitical developments for cues on future price movements.