Silver Price Forecast: XAG/USD Recovers Some Lost Ground, Optimistic Dollar Caps Upside

Silver spot prices staged a technical rebound after hitting a yearly low, but optimistic dollar sentiment continues to weigh on the precious metal. As of Tuesday's European session, silver was still recording an intraday decline of about 1%, trading near $53.5, after earlier dipping to a yearly low of $52.67. The US dollar index has remained resilient despite recent soft US macro data, making dollar-denominated silver more expensive for buyers holding other currencies and limiting the scope of the rebound.

**Cooling Rate-Hike Expectations Offer a Breathing Window**

Softening US macro data is reshaping market pricing of the Fed's tightening path. According to reports, October rate-hike bets have plunged from 70% previously to around 25%, with CME data showing the probability of holding rates steady that month has risen to over 70%. Goldman Sachs subsequently pushed back its second rate-hike expectation from October to December. Long-end Treasury yields have gradually stabilized after spiking, narrowing the room for further significant upside in real rates and marginally easing the downward pressure on silver valuations. This shift has provided key marginal support for silver following its September decline.

**Widening Divergence in Supply-Demand Fundamentals**

Bullish and bearish divergence around silver fundamentals remains pronounced. Deutsche Bank's Head of Metals Research Daniel Ghali previously warned that silver's multi-year supply deficit regime has officially ended, with a likely shift to oversupply by 2027, as inventories across the three major exchanges simultaneously "bulge." However, the Silver Institute's forecasts point in the completely opposite direction, projecting 2026 as the sixth consecutive year of supply deficit, with mine production struggling to meet demand growth. Some analysts argue that bearish factors such as downward revisions to photovoltaic silver demand have largely been priced in, with current price levels fully reflecting the industry's silver-reduction pace.

**Institutional Backing for Long-Term Bullish Scenario**

Despite near-term pressure, multiple institutions remain optimistic on silver's medium-to-long-term outlook. UBS, in its late-September forecast, set a year-end target price of $70, implying roughly 14% upside from current levels, citing silver's expected benefit from rising gold prices and recent tightening fundamentals. BofA analyst Michael Widmer analyzed from a gold/silver ratio perspective—currently near 59—noting that if it moves toward the bull-market low of around 40 seen in 2011, even without new gold highs, silver prices mathematically imply a range of $130 to $140. However, such bullish scenarios are highly dependent on sustained investment demand inflows and the continuation of the monetary easing cycle.