Silver Price Forecast: XAG/USD looks vulnerable near $54, Fed’s policy in focus

Silver price (XAG/USD) remains cautious in European trade on Monday, approaching its lowest level of the year (YTD) at $53, posted on Friday. Analysts at Commerzbank attribute the downward pressure on the white metal to growing tensions in the Middle East, which have bolstered oil prices and reignited concerns about inflation ahead of the Federal Reserve (Fed) meeting.

Brent oil gained 6.2% last week, surging to just under $117, reinforcing the notion that the Fed will likely maintain a hawkish monetary policy for an extended period. The Fed is expected to keep interest rates steady in the range of 3.75%-4.00% during their Wednesday announcement. Investors will closely monitor the Fed Chairman Kevin Warsh's remarks, as he has shown little interest in providing guidance on monetary policy, despite indicating high inflationary pressures persist.

In the daily chart, XAG/USD trades at $53.84, trading bearish near-term due to being well below the 20-day Exponential Moving Average (EMA) at $58.27. Technical analysis suggests that rallies remain limited by overhead supply, while a relatively low Relative Strength Index (14) of around 31 indicates emerging oversold conditions may prevent the price from dropping further.

Silver's price could slide further if it breaks below the YTD low of $53.03. As a precious metal, Silver has been utilized as a store of value and medium of exchange, albeit less popular than Gold. Despite its yield being zero, Silver's price may fluctuate depending on factors such as geopolitical instability, the US Dollar's performance, investment demand, mining supply, and recycling rates.

Silver's price is also influenced by industrial demand, particularly in sectors like electronics and solar energy, as the metal exhibits high electrical conductivity. The Gold/Silver ratio, which indicates the amount of Silver required to match the value of a single Gold ounce, can provide insights into the relative valuation of the two metals.

Historically, Silver has been employed by investors to diversify portfolios or act as a hedge during periods of high inflation.