Silver Price Forecast: Can XAG/USD extend gains towards $53.00 amid election shift and weaker US Dollar?

• Silver became more attractive as oil prices fell on hopes for peace with Iran following Democratic election wins.
• Rate-hike expectations found support in robust private-sector hiring, although cheaper energy could ease inflation in the near term.
• To assess the Fed's next policy step, investors are awaiting Initial Jobless Claims data and the Nonfarm Payrolls report.

Silver (XAG/USD) extends its advance into a second consecutive day, hovering near $53.10 per troy ounce in Thursday's Asian session. Supporting the metal, a sharp fall in oil prices followed Democratic wins in the US midterm elections, which fuelled hopes that the US-Iran conflict could end.

A softer US Dollar (USD) and declining Treasury yields provided additional support for the dollar-denominated, non-yielding white metal, making it more attractive to investors. Acknowledging that the war had cost Republicans the election, President Donald Trump identified high petrol prices as a major reason for the defeat. He also indicated that there were no immediate plans to intensify attacks on Iran.

While cheaper oil could moderate inflationary pressures and reduce concerns over near-term interest rate increases, resilient domestic economic releases continued to support expectations of a Federal Reserve rate hike. According to the ADP employment report, October private-sector hiring increased by 86,000, exceeding the forecast of 69,000. September's reading, however, was revised down from 90,000 to 86,000. The ISM Services PMI, meanwhile, eased from 54.9 to 54.5. Although slightly below the 54.8 forecast, it remained firmly in expansion territory.

A hawkish outlook for Federal Reserve (Fed) monetary policy persists on the back of these strong US economic readings. The CME FedWatch Tool indicates that markets assign nearly an 82% probability to another rate hike in December. Attention now shifts to the next economic releases: Thursday's weekly US Initial Jobless Claims and Friday's Nonfarm Payrolls report.

Why is DXY still viewed as above fair value after the post-election Dollar retreat?

Despite the US Dollar's post-election retreat, Scotiabank analysts maintain that the broader DXY index remains expensive against their valuation framework. Explaining that they “continue to highlight the DXY’s premium to our FV estimate based on 2Y spreads, which is closer to 100 (vs. spot in the mid-101s),” the analysts reaffirm their assessment that the Dollar remains above fair value, notwithstanding its recent weakness across G10 FX.