Silver (XAG) Forecast: Can Dovish Fed Expectations Drive Silver Above $30?

Silver Prices Edge Higher, Eye Key Resistance Levels

Silver prices rose on Friday, pushing above the 50-day moving average, but the market remains down for the week. Traders continue to grapple with the psychological $30 level, which is seen as a critical barrier for a potential breakout. Despite the weekly decline, silver is on track for a monthly gain, supported by expectations of U.S. interest rate cuts and ongoing geopolitical tensions.

At 11:32 GMT, XAG/USD is trading $29.51, up $0.09 or +0.29%.

Monthly Gains Driven by Rate Cut Expectations

Silver has gained over 1.70% this month as traders increasingly bet on a dovish shift from the Federal Reserve. The CME FedWatch Tool indicates a 67% probability of a 25-basis-point rate cut next month, with a 33% chance of a more aggressive 50-basis-point reduction. Lower interest rates typically boost the appeal of non-yielding assets like silver, as they reduce the opportunity cost of holding such investments.

Geopolitical Uncertainty and Safe-Haven Demand

In the Middle East, ongoing conflicts, particularly between Israel and Hamas, continue to add to the uncertainty, driving safe-haven demand for precious metals. With no significant progress in ceasefire talks, silver’s appeal as a store of value remains strong. Analysts suggest that safe-haven demand, coupled with potential central bank purchases of gold, could push silver prices toward the $32 to $35 range by year-end.

Focus on U.S. Inflation Data

Market participants are now turning their attention to the U.S. Personal Consumption Expenditures (PCE) index, the Federal Reserve’s preferred inflation measure, due later today. A softer-than-expected reading could reinforce expectations of a dovish Fed, potentially leading to lower Treasury yields and a weaker dollar, both of which are bullish for silver.

Treasury yields have remained relatively stable ahead of the inflation data, with the 10-year yield at 3.856% and the 2-year yield at 3.902%. Investors are also watching the Chicago Purchasing Managers’ Index and the final reading of consumer sentiment for August, which could provide further insight into the economic outlook.

Short-Term Market Outlook

Given the current market conditions, silver is likely to see increased volatility around the $30 level. A strong inflation report could dampen rate cut expectations and weigh on prices, while a weaker report could catalyze a rally. With traders fully pricing in a rate cut at the Fed’s September 18 meeting, any surprises in the upcoming economic data could significantly impact silver’s near-term direction. A decisive break above $30 could pave the way for silver to test the $32 to $35 range by the end of the year.

Technical Analysis

XAG/USD is edging higher on Friday after crossing to the bullish side of the 50-day moving average at $29.19. A sustained move over this level will signal the presence of buyers. If this creates enough upside momentum then look for a surge int $30.00 – $30.19. The latter is a potential trigger point for an acceleration to the upside with $31.76 to $32.52 the next like target zone.

A sustained move under the 50-day MA will signal the return of sellers. This could trigger a sharp break into the short-term pivot at $28.22.