Silver Price Forecast: XAG/USD plummets below $65 on higher-for-longer Fed interest rates narrative

Silver price (XAG/USD) is down 1.75% to near $64.85 during the European trading session on Tuesday. The white metal is under severe selling pressure as Federal Reserve (Fed) officials warn that strong demand is also fuelling upside inflation risks alongwith higher oil prices.

Demand-driven inflation leads to the higher interest rates, which remain elevated for a longer term. This is in contrary to supply-driven inflation, such as energy supply shocks, which are considered temporary in nature and influence interest rate expectations for a limited time period.

On Monday, Chicago Federal Reserve (Fed) Bank President Austan Goolsbee said, “Strong demand may be adding to inflation along with energy, tariff, other supply shocks.”

Over the weekend, Minneapolis Fed Bank President Neel Kashkari also said high inflation remains a key concern for policymakers, adding that hot price pressures are not only fuelled by elevated oil prices.

Currently, the CME FedWatch tool shows an almost 90% chance that the Fed will deliver at least one interest rate hike this year.

Meanwhile, investors await the meeting between leaders from the United States (US) and Gulf nations at the sidelines of the United Nations (UN) General Assembly in New York, which is expected later in the day. Leaders from nations are expected to discuss possible ways to increase the oil supply through the Middle East.

Silver Technical Analysis

In the daily chart, XAG/USD trades at $64.90, keeping a bearish near-term tone as it remains capped by the 20-day Moving Average Exponential (EMA) at $65.18. Price trades close to the broken downward resistance trend line, while the Relative Strength Index (14) around 50 hints at neutral momentum that fails to offset the overhead technical barriers.

On the topside, initial resistance is located at the 20-day EMA at $65.18, which continues to limit recovery attempts in the short term. On the downside, the former resistance trend line turning into support around $64.26 is the first level to watch, as a daily close below this area would likely expose XAG/USD to renewed selling pressure.