The recent 50 basis point rate cut by the Federal Reserve has further strengthened silver’s appeal as a non-interest bearing asset. The unexpected decision by the Federal Open Market Committee (FOMC) was a major driver of downward pressure on the dollar, leading investors to view silver as a safe haven.
China’s liquidity injection is supporting industrial demand for silver
Meanwhile, in China, the People’s Bank of China (PBoC) took steps to support liquidity, injecting CNY74.5 billion through a fourteen-day reverse repo operation. The bank cut interest rates from 1.95% to 1.85%, signaling its efforts to stimulate economic activity.
In addition, the PBoC provided an additional CNY 160.1 billion through a seven-day reverse repo at an unchanged interest rate of 1.7%. This liquidity injection, coupled with stable Loan Prime Rates (LPR) of 3.35% for the one-year term and 3.85% for the five-year term, could increase industrial demand for silver in the coming months.
As liquidity flows into the economy, manufacturing activity may pick up, increasing demand for silver in industrial applications and further stabilizing prices. Silver’s role as a safe haven, combined with a weaker dollar and rising industrial demand, points to a potential rise in prices as 2024 progresses.
Short-term forecasting
Silver (XAG/USD) remains above the $30.98 support, with a potential breakout above $31.42 targeting $31.75 and $32.08. Downside risks include support at $30.72 and $30.27.