Silver (XAG) Forecast: Is a Shift in Fed Policy the Catalyst Silver Needs in 2025?

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Silver’s inability to decisively break resistance reflects the market’s broader caution. The moving averages highlight a short-term bearish trend, with lower highs reinforcing downward pressure. A sustained rally will require stronger volumes, which is unlikely until the new year.

Fundamental Drivers – Short-term headwinds

The short-term outlook for silver is similar to that for gold, which remains under pressure following the Federal Reserve’s December 18 policy announcement. Although the Fed cut rates by 25 basis points, it forecast only two rate cuts in 2025, down from four previous projections. This shift caused selling in the precious metals market, as higher interest rates reduce the appeal of non-yielding assets like silver.

Moreover, the US dollar index (DXY) climbed to 108.05, supported by divergent monetary policies between the Fed and other global central banks. Rising government bond yields reinforced this trend, with a ten-year yield of 4.586%. Higher yields increase the opportunity cost of holding silver, putting further pressure on prices.

Long-term prospects – tailwinds of economic and political uncertainty

Despite near-term challenges, the longer-term outlook for silver remains positive. UBS expects gold could reach $2,800 by mid-2025, driven by concerns about inflation, geopolitical risks and possible rate cuts. Silver, which often moves alongside gold, could benefit from similar demand for safe havens. This could send silver back to the $34.35 to $35.40 area.

Additionally, political uncertainty in the US, including the 2024 presidential race, could create volatility, increasing silver’s appeal as a hedge against instability. If the Fed signals more aggressive rate cuts later in 2025, silver prices could rise in anticipation of easier monetary conditions.

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Forecast – range bound with breakout potential

In the near term, silver is likely to trade between $28.74 and $31.47, limited by low liquidity and cautious sentiment due to uncertainty over Federal Reserve policy. Traders should watch the dollar’s performance and economic data for clues about the Fed’s next steps, as these factors will drive silver’s next major breakout.

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