Silver Price Forecast: XAG/USD Rebounds Near $57.40 as Fed Risk Meets a Sixth Supply Deficit
Silver prices ticked up on Wednesday ahead of the Federal Reserve’s rate decision as persistent tightness in the physical market...
Silver prices ticked up on Wednesday ahead of the Federal Reserve’s rate decision as persistent tightness in the physical market and renewed geopolitical risk countered the impact of the firmer US dollar.
According to Reuters, spot silver was trading at $57.41 per ounce, up 0.5% at the time of writing. The metal has been choppy since hitting its all-time high of $121.64 per ounce in January, and has since seen a steep selloff. Some of the decline can be attributed to speculative positions being liquidated and technical selling.
While the near-term direction depends on the Fed, silver has an additional hurdle that gold does not face in the form of industrial uncertainty.
Fed Decision Will Help Determine Whether Silver Can Reclaim $58
The Fed closes its two-day rate-setting meeting on Wednesday and will decide whether to hold rates steady or raise them again. According to FedWatch, there is a 68% chance the Fed will stand pat and a 32% chance it will hike by 25 basis points. Investors are pricing in a 77% probability of a rate increase by September.
Rates higher for longer would likely hinder the silver rally as the dollar strengthens and the opportunity cost of holding a non-yielding asset rises. Should the Fed sound hawkish, led by Chair Kevin Warsh, then it may hamper any rebound and keep the XAG/USD below its short-term moving averages.
A more dovish tone would be constructive as lower rate expectations could see the greenback soften, thereby lifting appetite for precious metals and potentially allowing silver to make a push through the $58 resistance level.
Silver’s 46.3 Million-Ounce Shortfall Provides Strong Support
Supply/demand imbalances represent the biggest fundamental driver for silver prices. According to the Silver Institute’s 2026 World Silver Survey, compiled by Metals Focus, silver is projected to experience a 46.3 million-ounce deficit this year. This would mark the sixth consecutive year that the market consumed more silver than was produced, and hence must rely on above-ground stocks to satisfy demand.
The report, released on Friday, trimmed its earlier preliminary estimate of a 67-million-ounce shortfall to reflect the latest figures on mine supply, recycling and end-use demand. While the size of the deficit is smaller than previously estimated, the broader takeaway remains unchanged. Persistent structural deficits can provide a foundation for prices over the longer term, though they don’t rule out severe selloffs should financial investors exit positions en masse.
The fact that most silver production is derived as a byproduct of other base and precious metals mining limits the ability of mine supply to respond to higher prices. The Silver Institute expects global mine output to remain more or less unchanged in 2026 as challenges related to operations and ore grades offset the incremental production coming online from several new projects.
Primary silver mines constitute only about 28% of total mine production, which means the majority of supply comes from gold, copper, lead and zinc operations. Given that, miners of those commodities would not likely ramp up production just because silver prices are higher. Meanwhile, greenfield primary silver projects face long lead times to permit, finance and build.
Recycling is expected to help fill some of the gap, as owners of silver jewellery, silverware and scrap are incentivised to dispose of holdings when prices are high. But this additional source of supply would not be enough to close the annual deficit.
Solar Panel Demand Growth Slowdown Poses Downside Risk
Fabrication makes up the lion’s share of silver demand, but the composition of that consumption is shifting. The Silver Institute expects industrial demand to fall in 2026 as solar-panel makers slash the amount of silver per cell and increase substitutes as the metal becomes more costly. Solar weakness is expected to outpace gains associated with AI infrastructure, data centres, the automotive sector and the power grid.
While silver remains critical for many high-demand applications, the solar industry has proven it can reduce silver content when prices get too rich. This dynamic presents a downside to the bullish deficit thesis.
Reuters has found that analysts’ average 2026 price estimate for silver has fallen to around $72 per ounce from recent levels, owing to softer industrial demand and weaker solar panel demand.
Stronger bar and coin demand may partially offset weakness in the jewellery sector. The Silver Institute expects physical bar and coin purchases to rise significantly in 2026 given the combination of price volatility, geopolitical risk and worries about government debt levels, which have prompted investors to add to their precious metal allocations.
In contrast, jewellery and silverware demand is expected to deteriorate as elevated absolute prices reduce purchasing power, especially in price-sensitive markets like India.
US-Iran tensions boosting silver but adding rate risk
The escalating conflict between the U.S. and Iran has been another driver for precious metals. Reuters reports that U.S. military forces have intercepted several Iranian ballistic missiles targeting American installations in the Middle East. The rising tensions have sustained safe haven demand for metals, but have also led to worries that further supply disruptions to the energy market could lead to higher oil prices and inflationary pressures.
For silver, the impact is likely to be mixed. Geopolitical risks have historically drawn capital inflows to precious metals, while higher inflation driven by energy prices may result in the Fed keeping rates higher for longer. With a heavy industrial component, silver is likely to be more affected by any slowdown in economic growth and/or weakening manufacturing sentiment than gold.
Silver technical analysis: rising trendline sustains the rally
Silver managed to hold the rising trendline around $56.81 before bouncing off and closing above the 0.618 Fib retracement level at $57.29 on Friday. The recovery suggests that buyers are still present on dips. However, the XAG/USD pair is currently trading below a descending trendline that has served as resistance during the recent rally, leaving silver trapped in a narrowing range. Silver will need to break out of this range in order to determine if it will continue to rally or resume the longer-term downtrend.
Silver needs to reclaim the 50 EMA for a bullish breakout
Silver is currently testing the 50 EMA around $58.12, which marks the first major technical level to overcome. A daily close above the 50 EMA and the descending trendline would improve the short-term picture, opening up the path to $58.83, followed by the 1.272 Fib extension at $59.97.
However, price remains below the 200 EMA at $61.33, which means the overall trend is still not bullish. The 200 EMA also lines up with the 1.618 Fib extension at $61.39, forming a large resistance zone. Until that zone is broken, the current rally should be considered a corrective move within a larger sideways range rather than a resumption of the uptrend.
RSI recovery indicates buyers are stepping back in
The RSI indicator has recovered to about 51, just above the 50 neutral line after dipping into oversold territory during the recent selloff. This suggests that bearish pressure is fading and buyers are regaining control. However, the RSI level is not yet high enough to indicate a resumption of the rally. Further strength in the RSI and a break above $58.12 will confirm the bullish momentum. Conversely, a drop below 50 will signal that the rally is failing.
Silver’s $56.81 trendline sets the key downside level
Near term resistance is at $58.12, followed by $58.83, $59.97 and $61.39. A break above $58.83 will clear the way to the higher Fib levels, completing the breakout from the descending trendline.
Support starts at $57.29, with the key level being $56.81 where the rising trendline provides support. A break below $56.81 will signal that the near-term rally has failed, exposing $55.72.
- Resistance: $58.12, $58.83, $59.97, $61.39
- Support: $57.29, $56.81, $55.72
Silver outlook: Fed meeting, $58.12 resistance key
Silver enters the Fed meeting with improved short-term momentum, but with an uncertain long-term trend. The long-term fundamentals are positive, supported by a sixth straight year of supply deficits, declining mine output and increased investment demand. However, solar thrifting, softer jewelry demand and an uncertain manufacturing outlook weaken the case.
From a technical perspective, the near-term trend is now cautiously bullish as long as XAG/USD holds above $56.81. To confirm a breakout above the 50 EMA at $58.12 and the descending trendline is required. Any dovish comments from the Fed would pave the way for the pair to test $59.97 and $61.39. Hawkish signals, a stronger dollar or a break below $56.81 will send the pair lower, bringing $55.72 into play.
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