Silver Price Forecast: XAG/USD holds above $61.00 amid easing Fed rate hike expectations

Silver price (XAG/USD) recently increased, trading near $60.90 per troy ounce during Asian hours on Thursday. This price gain occurred as Federal Reserve (Fed) rate hike expectations softened following weaker-than-anticipated U.S. inflation data released on Wednesday. Markets now expect a 38% chance of a Fed rate hike in October, down from nearly 51% before the PCE release, according to the CME FedWatch Tool.

Investors will now focus on the Friday release of the U.S. Nonfarm Payrolls (NFP) report, which is projected to show 90,000 jobs added in September with the unemployment rate remaining at 4.1%. Cooling inflation expectations were influenced by the August U.S. PCE price index data, which showed a 0.3% increase against a 0.4% forecast, while core PCE rose by 0.2%, falling below the 0.3% consensus estimate.

On an annual basis, headline PCE inflation decelerated to 3.4%, considerably less than the expected 3.7%. However, further price increases for the white metal could be restrained by broader market headwinds such as rising oil prices and Treasury yields. Geopolitical tensions between the U.S. and Iran remain unresolved, with both nations showing progress in talks and concerns over Middle East oil flows.

The 10-year and 30-year Treasury yields have reached multi-decade highs, potentially signaling tighter monetary policy due to persistent energy-driven inflation. TD Securities stated that the latest US PCE and GDP revisions were a "mixed bag," with "hawkish backward adjustments to growth and dovish adjustments to inflation." However, they emphasized that the "underlying trend is the key story," with "robust growth with rising inflation risks" likely to continue influencing the Fed's outlook.

The firm believes the Fed will still raise rates in October but may take a more gradual approach. Silver, a precious metal traded among investors, is known for its store of value and medium of exchange properties. It is less popular than gold but serves as an alternative for diversification or as a hedge during high-inflation periods.

Investors can acquire physical silver coins or bars or trade it through Exchange Traded Funds that track its international market price. Silver prices fluctuate due to various factors, including geopolitical instability, recession fears, and safe-haven status, particularly less prominent than gold. As a yieldless asset, silver benefits from lower interest rates and tends to increase when the U.S. Dollar (USD) weakens.

Other factors like investment demand, mining supply, and recycling rates also impact silver prices. The metal is widely used in industries such as electronics, solar energy, and various industrial processes, and its demand, particularly in China, India, and the U.S., plays a significant role in determining its value. The Gold/Silver ratio provides insight into the relative valuation between both metals, with a high ratio potentially indicating an undervalued silver market or overvalued gold.