Usman Salis
Silver (XAG/USD) climbs to $31.30 amid escalating geopolitical tensions and expectations of slower Federal Reserve interest rate cuts.
XAG/USD Surges Amid Escalating Geopolitical Tensions
Silver (XAG/USD) continued its bullish trend, extending its rally for the third consecutive day. As of Monday’s Asian trading session, the precious metal was hovering around $31.30 per troy ounce. The price surge is fueled by safe-haven demand, as investors seek refuge in non-yielding assets amid rising geopolitical tensions across key global regions.
The geopolitical landscape took a dramatic turn on Sunday when Hezbollah claimed responsibility for a drone strike in north-central Israel. According to CNN, the attack resulted in the deaths of at least four Israeli soldiers, with over 60 people injured. This incident marks one of the most violent events in Israel since the war erupted last October, significantly escalating concerns over regional stability.
At the same time, tensions in Asia also heightened. On Monday, China’s military initiated drills around Taiwan and the Taiwan Strait. The US Department of State expressed grave concern over these military maneuvers by the People’s Liberation Army (PLA). Taiwan's Defense Ministry responded cautiously, stating it would not seek to escalate the conflict further, despite the rising tensions. These combined geopolitical developments are encouraging investors to seek the safety of assets like Silver.
XAG/USD Benefits from Fed’s Monetary Policy Expectations
In addition to geopolitical factors, Silver (XAG/USD) is also benefiting from growing expectations of changes in the Federal Reserve's monetary policy. While the Fed was previously expected to cut interest rates aggressively, recent economic data may indicate a slower pace of reductions.
The latest US economic data showed steady producer prices in September, paired with a significant rise in jobless claims. These figures have led many to question the resilience of the US labor market under the strain of higher interest rates. Non-yielding assets like Silver tend to benefit from such uncertainty, as lower interest rates decrease the opportunity cost of holding them.
CME FedWatch Tool Predicts Slower Rate Cuts
According to the CME FedWatch Tool, the market currently expects an 87% chance of a 25 basis point rate cut in November. This prediction signals that more aggressive rate cuts are unlikely, with no expectation of a 50 basis point reduction on the horizon.
As interest rates decline, Silver becomes increasingly attractive to investors. With lower rates, the opportunity cost of holding non-yielding assets like Silver decreases, driving further demand and contributing to XAG/USD’s rally.
With Silver trading near $31, it remains to be seen whether the rally can continue. While the safe-haven demand amid geopolitical risks could sustain the upward momentum, much will depend on the Fed’s decisions and the development of these tensions. Lower interest rates and geopolitical uncertainty continue to create favorable conditions for Silver, but investors should remain cautious about potential market corrections.
For more information on market expectations and updates on Silver prices, follow the latest economic data releases and geopolitical developments.
Usman Salis
