Silver Price Forecast: XAG/USD slides towards $50.50, hitting fresh 11-month lows

Silver came under pressure as sticky inflation and robust economic growth strengthened expectations that the Federal Reserve would raise interest rates.
The US economy continued to show resilience, with September PCE inflation rising and third-quarter GDP growth reaching 3.4%.
Markets assigned a 75% probability to a December rate hike, even as the Fed held rates steady ahead of the midterm elections.

Selling pressure kept Silver (XAG/USD) near a fresh 11-month low of $50.69 per troy ounce during Friday's European session, extending its decline to a third consecutive day. Behind the weakness were firmer market expectations of a possible Federal Reserve interest rate increase later this year, as inflation remained persistent and economic growth in the United States (US) held up.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

The US PCE price index underscored the inflation challenge: September's month-on-month increase of 0.5% was the biggest since March and lifted annual inflation to 3.6%. Core PCE inflation, meanwhile, rose to 3.1% year-on-year.

Further evidence of economic strength came from US GDP, which grew at an annualised rate of 3.4% in the third quarter, exceeding the market forecast of 3.2%. Steady consumer spending and strong investment in AI-related sectors were the main drivers of that performance.

Against this economic backdrop, Wednesday's Federal Reserve decision left interest rates unchanged ahead of the forthcoming US midterm elections. Investors, however, still see a high probability of further policy tightening.

Traders now put the probability of a 25-basis-point increase in December at approximately 75%, according to the CME FedWatch Tool. That marks a moderate decline from the 84.2% probability recorded a day earlier.

Are macro headwinds weakening demand for Silver and PGMs?

A divergence among precious metals remains evident after the FOMC meeting, according to TD Securities. In the bank's assessment, "while gold remains fairly resilient post-FOMC, industrial precious metals are skewing to the downside, with silver and PGMs materially underperforming as macro headwinds and the prospect of tightening policy weigh on demand outlooks." As investors reconsider demand prospects under a potentially tighter policy regime, this relative weakness highlights mounting pressure on metals with greater industrial exposure compared with Gold.

Silver: Common Questions

What attracts investors to Silver?

Investors actively trade Silver, a precious metal with a long history as both a store of value and a means of exchange. While it attracts less interest than Gold, Silver may appeal to traders seeking portfolio diversification, intrinsic value or a potential hedge in periods of high inflation. Investment options include buying physical Silver as coins or bars, as well as trading through instruments such as Exchange Traded Funds that follow its price in international markets.

What drives changes in Silver prices?

A broad set of influences can drive Silver prices. Its safe-haven appeal means geopolitical instability or concerns over a severe recession can lift prices, though generally less than they would lift Gold. Lower interest rates also tend to support Silver because it offers no yield. Since the metal is quoted in dollars (XAG/USD), movements in the US Dollar (USD) are another important influence: Dollar strength typically restrains Silver prices, while a weaker Dollar is likely to push them higher. Investment demand, recycling rates and mining supply can also affect prices, with Silver far more abundant than Gold.

How important is industrial demand for Silver prices?

Industrial applications account for widespread use of Silver, notably in electronics and solar energy, owing to its electrical conductivity, which ranks among the highest of all metals and exceeds that of Copper and Gold. Prices can rise when demand surges and tend to fall when it weakens. Economic developments in the US, China and India can also drive price fluctuations. Large industrial sectors in the US and, especially, China use Silver across a range of processes, while demand from Indian consumers for Silver jewellery is another key influence on prices.

How closely does Silver track Gold prices?

Gold's price movements often set the direction for Silver. Their similar safe-haven status means Silver usually advances when Gold rises. To assess their relative valuations, investors may use the Gold/Silver ratio, which measures how many ounces of Silver equal the value of one ounce of Gold. A high ratio may be interpreted by some investors as a sign that Silver is undervalued or Gold is overvalued. A low ratio, by contrast, might indicate that Gold is undervalued compared with Silver.