Silver Price Forecast: XAG/USD rises near $31.50 on rising geopolitical tensions

• Silver price receives support from safe haven flows amid escalating tensions in the Middle East.
• Non-yielding Silver could be negatively affected by prolonged high rates, as the decreasing probability of a Fed rate cut reduces its attractiveness.
• A decline in Chinese manufacturing activity could have limited the positive impact of fiscal and monetary stimulus on Silver demand.

The price of Silver (XAG/USD) extends its gains for the second day in a row, trading around $31.50 per troy ounce during European hours on Wednesday. The rise in Silver prices is attributed to safe haven flows amid escalating geopolitical tensions in the Middle East.

Iran launched more than 200 ballistic missiles at Israel on Tuesday, shortly after the US warned that an attack was imminent. The Israel Defense Forces reported that several of the missiles were intercepted, while reports indicated that one person was killed in the West Bank, according to Bloomberg.

Israeli Prime Minister Benjamin Netanyahu vowed to retaliate against Iran following a missile attack on Tuesday. In response, Tehran warned that any counterattack would lead to “massive destruction,” raising concerns about the possibility of a broader conflict.

The weaker-than-expected ISM Manufacturing PMI on Tuesday left room for the US Federal Reserve (Fed) to continue lowering rates. The index stood at 47.2 for September, matching the August reading but below the market expectation of 47.5. However, Fed Chair Jerome Powell said Monday that the central bank is in no rush and will lower its benchmark rate gradually ‘over time.’

The CME FedWatch tool indicates that markets are assigning a 62.7% probability to a 25 basis point rate cut by the Federal Reserve in November, while the probability of a 50 basis point cut is 37. 3%, down from 57.4% a week ago. Prolonged higher interest rates keep the opportunity cost of holding non-yielding assets like Silver higher, making it less attractive to investors looking for more attractive, yielding alternatives.

Silver demand has been boosted by China’s fiscal and monetary stimulus, particularly benefiting industrial applications in one of the world’s largest manufacturing centers. However, weaker-than-expected demand growth in China, coupled with data indicating a decline in manufacturing activity, could have limited the gray metal’s upside potential.