Silver Price Forecast: XAG/USD plummets below $65 on higher-for-longer Fed interest rates narrative

The silver price (XAG/USD) dropped 1.75% to around $64.85 during Tuesday's European trading session. This decline stems from heightened selling pressure, driven by Federal Reserve (Fed) officials expressing concerns over strong demand and inflation risks, coupled with higher oil prices. Inflation driven by demand, coupled with energy, tariff, and other supply shocks, could result in sustained higher interest rates.

This stands in contrast to temporary supply-driven inflation, such as energy supply shocks, which mainly influence short-term interest rate expectations. Austan Goolsbee, President of the Chicago Federal Reserve (Fed) Bank, stated that "strong demand may be adding to inflation along with energy, tariff, other supply shocks." Meanwhile, Minneapolis Fed Bank President Neel Kashkari warned that high inflation remains a key concern for policymakers, noting that price pressures are not fueled solely by elevated oil prices.

Currently, the CME FedWatch tool indicates a nearly 90% probability that the Fed will raise interest rates at least once in 2023. Investors are eagerly awaiting the meeting between leaders from the United States and Gulf nations, which is expected later in the day at the UN General Assembly in New York. The leaders are anticipated to discuss potential measures to boost oil supply through the Middle East.

On the daily chart, XAG/USD is trading at $64.90, maintaining a bearish short-term outlook as it remains constrained by the 20-day Exponential Moving Average (EMA) at $65.18. The price is near a broken downward resistance trend line, while the Relative Strength Index (14) at approximately 50 suggests neutral momentum that fails to overcome overhead technical barriers.

The 20-day EMA at $65.18 continues to act as a significant near-term resistance level, limiting recovery attempts in the short term. Conversely, the former resistance trend line has transformed into support around $64.26. A daily close below this level could expose XAG/USD to further selling pressure. Silver is a precious metal frequently traded by investors, historically utilized as a store of value and medium of exchange.

Although less favored than Gold, traders may opt for Silver to diversify their investment portfolios due to its intrinsic value or as a potential hedge during periods of high inflation. Investors can acquire physical Silver, such as coins or bars, or trade it via instruments like Exchange Traded Funds, which mirror its price on international markets.

Silver prices fluctuate due to various factors. Geopolitical instability or fears of a severe recession can cause Silver prices to surge due to its safe-haven status, although to a lesser extent than Gold's. As a yield-free asset, Silver typically appreciates with declining interest rates, while its movements also depend on the performance of the US Dollar (USD), as it is priced in dollars (XAG/USD).

A stronger Dollar tends to keep Silver prices stable, while a weaker Dollar is likely to boost prices. Other factors, such as investment demand, mining supply—Silver is significantly more abundant than Gold—and recycling rates, can also impact prices. Silver's industrial applications, particularly in sectors like electronics and solar energy, contribute to its value, as it boasts one of the highest electrical conductivities among metals, surpassing Copper and Gold.

A surge in demand can escalate prices, while a decline generally lowers them. Silver prices closely follow Gold's movements; when Gold prices rise, Silver typically follows. The Gold/Silver ratio, indicating the number of ounces of Silver needed to match the value of one ounce of Gold, aids in determining the relative valuation of both metals.

Some investors may view a high ratio as a sign that Silver is undervalued or Gold is overvalued. Conversely, a low ratio might imply that Gold is undervalued relative to Silver. Sagar Dua, a financial markets professional, began his markets training with chart analysis during his college days.