Silver Price Forecast: XAG/USD remains under pressure near $63 ahead of Fed’s policy decision

Silver price (XAG/USD) is currently trading near $63.14 during Tuesday's European trading session, experiencing pressure as market participants await the Federal Reserve's policy decision on Wednesday. The CME FedWatch tool indicates a 92% likelihood of a 25 basis point (bps) interest rate hike by the Fed, bringing the target range to 3.75%-4.00%.

This marks the first rate adjustment by the Fed this year, after maintaining the status quo for the previous five meetings. A higher Fed rate typically raises yields on interest-bearing assets, reducing the attractiveness of non-yielding assets like Silver. With the first hike anticipated this year, US Treasury Yields have reached a multi-year high near 5.03%.

Investors will closely monitor the Fed's comments on inflation and economic outlook during the policy meeting, as Chair Kevin Warsh's past behavior suggests he will not provide forward guidance. ING economists have revised their forecast to a 25bps rate hike in September, following Chair Warsh's address at the Jackson Hole symposium.

While they acknowledge that the Fed may hike additional times after September, they believe a "one and done" approach is more likely, given the current job and inflation projections. Currently, XAG/USD is trading at $63.09, trading below the 20-day Exponential Moving Average of $65.12, which suggests a bearish short-term bias. The Relative Strength Index (RSI) stands at 44.4, just under the neutral zone, indicating subdued bullish momentum and vulnerability for the metal to reclaim the short-term EMA support.

The next resistance level lies at the 20-day EMA at $65.12, while the August 19 low of $62.19 could provide crucial support. Silver, a widely traded precious metal, serves as a store of value and hedge during inflationary periods. It can be bought as physical metal or through Exchange Traded Funds tracking its price on international markets.

Factors such as geopolitical tensions, interest rates, the US Dollar's strength, investment demand, mining supply, and recycling rates impact Silver prices. Additionally, Silver's price often mirrors Gold's movements, and the Gold/Silver ratio can help determine relative valuation between the two metals.