Silver (XAG) Forecast: The Impact of China’s Stimulus on Prices

Silver Prices Surge Amid Geopolitical Tensions

This week, silver prices surged, approaching multi-year highs, driven by a combination of safe-haven demand and support from bullish gold prices. Silver rallied sharply as global markets reacted to escalating geopolitical risks, expectations of monetary easing, and ongoing economic uncertainty. By the end of the week, silver was trading on the strong side of the key resistance level of $32.96, a price last seen on October 4, with traders closely watching for a breakout that could propel prices even higher this week.

Weekly Silver (XAG/USD)

• Last week, XAG/USD settled at $33.72, up $2.72 or +6.91%.

Gold’s Influence Fuels Silver’s Rally

Silver’s strong upward movement this week was largely aided by gold’s record-breaking performance. As gold surged past the $2700-per-ounce threshold, silver followed suit, reflecting the metals’ historically close correlation. Geopolitical tensions, particularly in the Middle East, played a significant role in this rally as investors sought safe-haven assets. Conflict between Israel and Hezbollah escalated, with pledges from both sides to continue fighting, prompting fears of wider regional instability. This drove investors to both gold and silver as they hedged against risk.

Stimulus Hopes Bolster Silver’s Upside

Apart from geopolitical risks, the silver market also found support in expectations of further monetary stimulus from China. As China’s economic growth slowed to its weakest pace this year, there was growing anticipation that the government would implement more aggressive measures to stabilize the economy. This speculation boosted industrial demand for silver, as the metal plays a significant role in manufacturing and technology. However, despite the promise of Chinese stimulus, concerns over structural challenges in the property sector tempered some of the optimism.

U.S. Dollar and Treasury Yields Present Resistance

Silver’s rally faced headwinds from a strong U.S. dollar and resilient U.S. Treasury yields, which continued to hover near multi-month highs. A stronger dollar typically weighs on silver, making it more expensive for foreign buyers, while higher Treasury yields reduce the appeal of non-yielding assets like precious metals. Despite this, silver managed to maintain its upward momentum, bolstered by risk aversion and expectations of U.S. interest rate cuts.

Market Forecast: More Gains Ahead?

Looking ahead, silver appears poised to challenge its multi-year high of $35.40. However, the market remains sensitive to global risk sentiment. Continued geopolitical instability and the possibility of looser monetary policies could fuel further gains, while a stronger dollar and higher Treasury yields may limit the upside. Traders will be closely monitoring key resistance levels and any developments out of China and the U.S. Federal Reserve for additional clues.

Silver’s outlook is cautiously bullish, with a strong chance of further gains if these factors align favorably.