Silver Price Forecast: XAG/USD regains ground below $71 despite Fed’s hawkish tilt

Silver price (XAG/USD) is up 1.5% to near $72.35 during the European trading session on Thursday. The white metal gains ground after posting a fresh three-week low at $70.86 on Wednesday.

The outlook of the precious metal remains uncertain as the Federal Reserve (Fed) warns of upside inflation risks in the monetary policy announcement on Wednesday after leaving interest rates unchanged in the range of 3.50%-3.75%, as expected.

“We remain attentive to risks on both sides of our mandate,” Fed Chair Jerome Powell said in the press conference, adding, “The energy surge has not yet peaked.” Three rate-setting members advocated a move away from the easing bias as higher energy prices have de-anchored inflation expectations.

Meanwhile, the speculation for the Fed to cut interest rates this year has also diminished, following Fed’s hawkish hold. According to the CME FedWatch tool, the odds of the Fed delivering one interest rate cut this year have fallen to 3.3% from 18.4% seen on Tuesday.

Theoretically, diminishing hawkish Fed bets bode poorly for non-yielding assets, such as Silver.

In addition to diminishing hawkish Fed prospects, a fresh upside move in the oil price, following comments from United States (US) President Donald Trump that Washington’s naval blockade on Iran will extend further, also weighs on the Silver price outlook.

Higher oil prices tend to prompt global inflation expectations, a scenario that discourages central banks from easing monetary conditions and eventually undermines the Silver price’s appeal.