Silver prices fell towards $57.20 per ounce on Tuesday as a stronger US dollar and growing expectations of tighter Federal Reserve policy outweighed support from another year of structural supply deficits. With the Fed set to announce its latest policy decision on Wednesday, traders are watching whether XAG/USD can hold the key $56.81 Fibonacci support before the next directional move.

Stronger Dollar and Fed Expectations Pressure Silver

Silver came under renewed selling pressure as investors reduced exposure ahead of the Federal Reserve’s two-day policy meeting. Spot silver traded near $57.23 per ounce, down around 2% on the day, extending its retreat after briefly approaching the $60 mark last week. The stronger US dollar remained the primary headwind, making dollar-denominated precious metals more expensive for overseas buyers.

Markets are increasingly focused on the Fed’s policy guidance rather than the rate decision itself. According to CME FedWatch, investors assign a 62% probability that policymakers will leave interest rates unchanged this week, while the likelihood of a 25-basis-point increase has climbed to 38%, up sharply from around 16% a week ago. Markets are also pricing roughly an 81% chance of a September rate increase, reflecting expectations that inflation risks remain elevated.

Higher interest rates generally reduce the appeal of non-yielding assets such as silver by increasing returns on cash and government bonds. A hawkish statement from the Fed could therefore keep pressure on both silver and gold, even if rates remain unchanged this week.

Industrial Demand and Supply Deficits Continue to Support the Long-Term Outlook

Unlike gold, silver derives much of its value from industrial demand, particularly in electronics, renewable energy, electric vehicles and advanced manufacturing. While concerns over slower global growth have weighed on industrial metals in recent weeks, the long-term supply picture remains supportive.

The Silver Institute expects the global silver market to record its sixth consecutive annual supply deficit in 2026. Its latest estimates indicate the market could remain undersupplied by approximately 46.3 million ounces, even after modest improvements in mine production and recycling. Earlier projections had suggested a deficit closer to 67 million ounces, highlighting that global consumption continues to exceed newly available supply.

Physical investment demand also remains resilient. The Silver Institute forecasts demand for silver coins and bars to increase by roughly 20% to around 227 million ounces this year, the strongest level in three years. Although industrial fabrication is expected to soften slightly, silver continues to benefit from growing demand across electrical infrastructure, electronics and clean energy technologies.

Another supportive factor comes from India, where tighter import restrictions and higher import duties have significantly reduced silver imports, creating regional shortages and lifting domestic premiums above international benchmark prices.

Economic Data Could Drive the Next Move

Following Wednesday’s Fed decision, attention will quickly shift to Thursday’s US GDP, personal income, spending and Core PCE inflation reports. The Core PCE index remains the Federal Reserve’s preferred inflation gauge, and any upside surprise could reinforce expectations for another rate increase in September.

Conversely, softer economic growth or easing inflation would weaken the US dollar and improve the outlook for precious metals, particularly silver, which tends to react more sharply than gold to changes in monetary policy expectations.

Silver Price Forecast: Can XAG/USD Hold the $56.81 Fibonacci Support?

Silver’s technical picture has weakened after breaking below the ascending trendline that supported the rally from the July 17 low. The decline has brought prices towards the 50% Fibonacci retracement at $56.81, where buyers have begun to emerge. However, the recovery remains tentative as XAG/USD continues to trade below both the former trendline and its key moving averages.

The 50-period EMA at $58.38 has turned lower and now acts as immediate resistance, while the 200-period EMA at $58.99 remains firmly above price, confirming that sellers retain short-term control. Meanwhile, the RSI has fallen to around 34, approaching oversold territory but not yet signalling a confirmed bullish reversal.

A sustained recovery above $58.34 would improve the near-term outlook and expose the 200-period EMA at $58.99, followed by the descending trendline near $59.96. If buyers regain control above these levels, the next upside objective comes in at $61.38.

On the downside, $56.81 remains the first key support. A decisive break below this Fibonacci level would expose $56.33, followed by $55.72, while a deeper correction could extend towards $54.77.

Trade Setup

Bullish scenario: Buy on a confirmed break above $58.34.
Target 1: $58.99
Target 2: $59.96
Extended Target: $61.38
Stop-loss: Below $56.81

Bearish scenario: A confirmed break below $56.81 could accelerate losses towards $56.33, followed by $55.72 and $54.77.

FAQs

Why is silver falling today?

Silver is under pressure because the US dollar has strengthened ahead of the Federal Reserve’s policy decision, reducing demand for non-yielding precious metals and increasing the cost of silver for international buyers.

Why does industrial demand matter for silver?

Unlike gold, more than half of global silver consumption comes from industrial applications, including electronics, solar panels, electric vehicles and electrical infrastructure. Economic growth expectations therefore have a greater influence on silver prices.

Can the long-term supply deficit support silver prices?

Yes. The Silver Institute expects another annual supply deficit in 2026, with global demand continuing to exceed mine production and recycling. Persistent shortages could provide longer-term support once monetary policy uncertainty begins to ease.

Arslan Ali Butt

Lead Markets Analyst – Multi-Asset (FX, Commodities, Crypto)

Arslan Ali Butt serves as the Lead Commodities and Indices Analyst, bringing a wealth of expertise to the field. With an MBA in Behavioral Finance and active progress towards a Ph.D., Arslan possesses a deep understanding of market dynamics.

His professional journey includes a significant role as a senior analyst at a leading brokerage firm, complementing his extensive experience as a market analyst and day trader. Adept in educating others, Arslan has a commendable track record as an instructor and public speaker.

His incisive analyses, particularly within the realms of cryptocurrency and forex markets, are showcased across esteemed financial publications such as ForexCrunch, InsideBitcoins, and EconomyWatch, solidifying his reputation in the financial community.