Silver Price Forecast: XAG/USD retreats below $53.50 as uncertainty surrounds Fed outlook

• With the Fed leaving interest rates unchanged and providing little forward guidance, Silver remains close to one-year lows.
• Citing continued growth in overall economic activity, the Fed left interest rates at 3.75%–4.00%.
• Stressing the economy’s continued strength, Fed Chair Warsh reiterated his commitment to price stability and the 2% inflation target.

Following the US Federal Reserve’s widely expected decision to leave interest rates unchanged, Silver remains close to one-year lows. Silver price (XAG/USD) is trading at around $53.30 per troy ounce in Thursday’s Asian session, extending its decline for a second consecutive day. Limited guidance from the central bank on when it might next adjust policy, and the path it might take, continues to weigh on the precious metal.

Interest rates were left at 3.75%–4.00% by the Federal Reserve, which noted continued expansion in economic activity. Resilient domestic spending, solid capital investment and strong productivity growth were highlighted in its statement. On the employment side of its mandate, the Fed said job creation had matched growth in the workforce, with little change in the unemployment rate.

Although the Fed recognised that inflationary pressures remain elevated, it paused further rate increases to collect more data and judge the appropriate stance of monetary policy. Two policymakers opposed the decision: Fed Governor Lisa Cook and Cleveland Fed President Beth Hammack both favoured an immediate increase in rates.

Emphasising the strength of the underlying economy, Fed Chair Kevin Warsh reiterated the Federal Open Market Committee’s commitment to price stability and its 2% inflation objective. He also set out the future monetary policy timetable. The Fed will hold eight meetings next year, one of which will not involve a formal vote, while Warsh expects six policy-setting meetings in 2028.

For a clearer indication of the monetary policy outlook, traders are looking ahead to the forthcoming US Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred measure of inflation.

Renewed diplomatic efforts to avert a further escalation of conflict in the Middle East are also drawing market attention. Oil prices nevertheless remain persistently high, sustaining inflation worries and reinforcing expectations that interest rates will stay elevated for longer. Higher borrowing costs create a difficult environment for Silver: rising yields and continued pressure from interest rates generally weigh on precious metals that offer no yield.

Systematic flows shift from Silver towards base metals

Commodity Trading Advisors have recently adjusted their exposure across the metals complex through systematic trading, according to TD Securities. The bank observed that “in metals markets, CTAs are sellers of silver and buyers of zinc and lead on the day.” Investors are reducing silver exposure while selectively increasing holdings of industrial metals, including zinc and lead, highlighting the divergence in current positioning flows between precious and base metals.