Silver Price Forecast: XAG/USD Slips to $28.50 Amid Diminishing Hawkish Sentiment from the Fed
Silver prices (XAG/USD) have experienced a downturn, falling to around $28.50 per troy ounce in the early hours of Monday. This marks the second consecutive session of losses for the precious metal, driven largely by shifting market sentiment following recent economic data from the United States. The decline in silver prices can be attributed to a combination of factors, including diminishing expectations of aggressive monetary easing by the Federal Reserve and rising geopolitical tensions.
Impact of US PCE Index Data on Market Sentiment
The recent release of the US Personal Consumption Expenditures (PCE) Index data for July has had a significant impact on market expectations regarding the Federal Reserve’s future monetary policy moves. The PCE Index, a key indicator of inflation that the Fed closely monitors showed signs of moderating inflationary pressures, leading traders to reassess their expectations for the Fed’s rate-cutting trajectory.
Before the release of the PCE data, there was a strong belief in the market that the Fed might adopt an aggressive stance in reducing interest rates to combat slowing economic growth. However, the July PCE data has prompted a reevaluation of these expectations. With inflation showing signs of cooling, the urgency for the Fed to implement deep rate cuts has lessened. This shift in sentiment has put downward pressure on silver prices, as the metal is often seen as a hedge against inflation and a beneficiary of a looser monetary policy.
XAG/USD Daily Price Chart
Source: TradingView, prepared by Richard Miles
Fed’s Monetary Policy Outlook
The Federal Reserve’s approach to interest rates remains a central focus for market participants. According to the CME FedWatch Tool, there is now a 70% probability that the Fed will opt for at least a 25 basis point rate cut at its September meeting. This probability has been adjusted downward from earlier expectations of more aggressive cuts, reflecting the influence of the recent PCE data.
Adding to the uncertainty, comments from Federal Reserve officials have also played a role in shaping market sentiment. Raphael Bostic, the President of the Federal Reserve Bank of Atlanta and a noted hawk within the Federal Open Market Committee (FOMC), recently remarked that it might be “time to move” on rate cuts due to cooling inflation and a higher-than-expected unemployment rate. Bostic’s comments, while not overtly dovish, have been interpreted as neutral by market analysts, suggesting that the Fed may take a more measured approach to rate cuts in the coming months.
A custom AI model analyzing Fed officials’ speeches rated Bostic’s remarks as neutral, scoring them at 5.6 on a dovish-to-hawkish scale of 0 to 10. This further underscores the growing sentiment that the Fed may not rush to implement aggressive rate cuts, thereby reducing the support for silver prices that could come from a more accommodative monetary policy.
Geopolitical Tensions and Safe-Haven Demand
While economic data and Fed policy expectations are key drivers of silver prices, geopolitical factors also play a crucial role in shaping the market’s direction. Recently, silver has come under additional downward pressure due to escalating tensions in Israel. On Sunday, widespread protests erupted across the country, driven by frustration over the government’s handling of the ongoing conflict and the failure to secure a ceasefire agreement.
The protests, which saw an estimated 500,000 people take to the streets in cities such as Jerusalem and Tel Aviv, have added to the geopolitical uncertainty in the region. Protesters are demanding stronger action from Prime Minister Benjamin Netanyahu to secure the release of the remaining 101 hostages, a situation that has further strained the government’s credibility.
Typically, silver is viewed as a safe-haven asset, which tends to gain value during periods of geopolitical instability. However, in this instance, the impact of the protests on silver prices has been mixed. While the protests have contributed to an increase in market uncertainty, the prevailing sentiment driven by US economic data and Fed policy expectations has overshadowed the safe-haven appeal of silver.
Focus on Upcoming US Employment Data
Looking ahead, market participants are likely to focus on the upcoming US employment figures, including the Nonfarm Payrolls (NFP) report for August. This data will be critical in shaping the market’s expectations for the Fed’s next moves. A strong NFP report could reinforce the view that the US economy is resilient, potentially reducing the likelihood of aggressive rate cuts and further weighing on silver prices. Conversely, a weaker-than-expected NFP report could reignite concerns about economic growth, potentially boosting silver’s appeal as a safe haven.
The silver market is currently navigating a complex landscape of economic data, central bank policy expectations, and geopolitical tensions. The recent drop in silver prices to around $28.50 per troy ounce reflects the market’s reaction to moderating inflationary pressures in the US, which have diminished the odds of aggressive rate cuts by the Federal Reserve. At the same time, geopolitical tensions in Israel have added another layer of uncertainty, although their impact on silver prices has been tempered by the prevailing macroeconomic outlook.
As traders await further clarity from upcoming US employment data, silver prices are likely to remain sensitive to developments on both the economic and geopolitical fronts. In this environment, maintaining a balanced perspective and staying informed about the latest market trends will be key for those navigating the silver market.
