Silver Price Forecast: XAG/USD soars above $31 after Fed’s bumper rate cut decision

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

Silver price (XAG/USD) delivers a sharp rally above the crucial resistance of $31.00 in Thursday’s European session. The white metal strengthens as the US Dollar (USD) surrenders its early gains and declines. The US Dollar weakens as the dust settles after the Federal Reserve’s (Fed) monetary policy decision in which the central bank announced its first ever interest rate cut in more than four years.

Historically, lower interest rates by the Fed bode well for non-yielding assets, such as 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, falls to near 100.60, following the Fed 50-basis points (bps) interest rate cut to 4.75%-5.00%. The Fed was widely anticipated to cut interest rates but traders were divided over potential rate cut size. A bumper interest rate cut by the Fed gives a clear indication that price pressures are on track to return to the bank’s target of 2%.

For the interest rate guidance, policymakers see the federal fund rate heading to 4.4% by year-end, which suggests that there will be at least 25 bps more decline in interest rates. On the contrary, the CME FedWatch tool shows that the central bank will cut 75 bps in the remaining monetary policies this year.

Silver technical analysis

Silver price strengthens as it has delivered a breakout of the downward-sloping trendline plotted from May 20 high of $32.50. The asset is expected to extend its upside towards the previous high of $32.50. Upward-sloping 20-day Exponential Moving Average (EMA) near $29.50 suggests that the near-term outlook is upbeat.

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

Silver daily chart