Silver prices surged to near 11-month highs on Thursday, as investors reacted to the Federal Reserve’s decision to maintain key borrowing rates unchanged and signaled a potential for rate cuts later in the year.
In Thursday’s European session, the price of silver, represented by XAG/USD, extended its upside to $25.70, inching closer to reclaiming the 11-month high at $26.14. The precious metal’s appeal strengthened following the Fed‘s monetary policy announcement on Wednesday.
The Federal Reserve, for the fifth consecutive time, kept key borrowing rates unchanged in the range of 5.25%-5.50%, in line with market expectations. However, the Fed’s indication of three potential rate cuts this year bolstered investor sentiment towards silver. Market expectations for rate cuts surged to almost 75% from 59% recorded before the Fed’s policy announcement, according to the CME FedWatch tool.
Silver prices tend to have an inverse relationship with interest rates, making them more appealing when interest rates are low. As expectations for rate cuts in June grew, the appeal of silver as an alternative investment option increased.
In response to the Fed’s announcement, the US Dollar weakened, further supporting the upward trajectory of silver prices. Additionally, risk-sensitive assets gained traction as investors anticipated rate cuts starting in June. S&P 500 futures posted significant gains during the London session, while 10-year US Treasury yields experienced a slight dip.
Despite the Fed’s decision to maintain rates, uncertainty remains regarding the timing of rate cuts. The Fed emphasized the need for evidence that inflation will sustainably decline to the 2% target before implementing rate cuts.
Looking ahead, silver prices are expected to continue their upward momentum, with analysts forecasting prices to potentially reach $2,300 per ounce in the second half of 2024. Central bank purchases of bullion remain at record levels, further supporting the bullish outlook for silver prices.
Investors will closely monitor economic indicators and the Fed’s future guidance for clues about the timing of rate cuts, which will continue to influence silver prices in the coming months.
