Silver Price Forecast: XAG/USD surges above $31 following Fed decision for significant rate cut

• Silver price rises above $31.00 following Fed policy announcement.
• The Fed cut interest rates by 50 bps to 4.75%-5.00%.
• The Fed’s interest rate cut signals that inflation is on track to return to the bank’s 2% target.

Silver (XAG/USD) price is seeing a sharp rise above the crucial resistance of $31.00 in the European session on Thursday. The white metal is gaining strength as the US Dollar (USD) gives back its early gains and falls. The US Dollar is weakening as the fallout from the Federal Reserve (Fed) monetary policy decision settles in where the central bank announced its first interest rate cut in over four years.

Historically, lower interest rates from the Fed are favorable for non-yielding assets like Silver as they reduce the opportunity cost of holding an investment in them.

The US Dollar Index (DXY), which tracks the greenback’s value against six major currencies, is down near 100.60, following the Fed’s 50 basis point (bps) interest rate cut to 4.75%-5.00%. The Fed was widely anticipated to cut interest rates, but traders were divided on the potential size of the cut. A significant interest rate cut by the Fed gives a clear indication that price pressures are on track to return to the bank’s 2% target.

For interest rate guidance, policymakers see the federal funds rate heading to 4.4% by year-end, suggesting at least a further 25 bps decline in interest rates. In contrast, the CME FedWatch tool shows the central bank cutting 75 bps over the remaining monetary policies this year.

Technical analysis of Silver

Silver price is gaining strength as it has managed to break out of the downtrend line drawn from the May 20 high of $32.50. The asset is expected to extend its rise towards the previous high of $32.50. The upward sloping 20-day exponential moving average (EMA) near $29.50 suggests that the near-term outlook is bullish.

The 14-day Relative Strength Index (RSI) is trading above 60.00. A new round of bullish momentum could occur if the oscillator sustains around this level.

Silver daily chart