Silver Price Forecast: XAG/USD hovers around $31.00 near two-month highs

• Silver price holds its position below a two-month high of $31.09, which was recorded on Monday.
• The non-yielding Silver becomes more attractive to investors amid rising odds of a bumper Fed rate cut.
• The dollar-denominated commodity becomes cheaper for buyers using other currencies as the US Dollar remains tepid.

Silver price (XAG/USD) trades around $30.80 per troy ounce during Tuesday's European hours, maintaining its position near a two-month high of $31.09, marked on Monday. Silver price is gaining ground due to rising expectations of a significant 50 basis points rate cut by the Federal Reserve on Wednesday.

As a non-yielding commodity asset, Silver becomes more attractive to investors in a lower interest rate environment, where the opportunity cost of holding it decreases, potentially offering better returns compared to other assets.

According to the CME FedWatch Tool, markets are pricing in a 33.0% chance of a 25 basis point Federal Reserve interest rate cut at the September meeting, while the probability of a 50 basis point cut has surged to 67.0%, up from 50.0% just a day earlier. This shift reflects heightened anticipation of more aggressive monetary easing.

The US Dollar (USD) faces challenges due to lower Treasury yields. The US Dollar Index (DXY), which measures the value of the US Dollar against its six other major peers, trading around 100.60 with 2-year and 10-year standing at 3.55% and 3.61%, respectively, at the time of writing.

Silver, being a dollar-denominated commodity, becomes more affordable for buyers using other currencies when the US Dollar weakens. This price advantage can help boost demand for the precious metal, as it becomes less expensive for buyers with other currencies to purchase.

However, demand for Silver could be negatively impacted due to disappointing economic data from China, raising concerns about consumption in the world's largest metals market. Over the weekend, data showed that China's industrial output, retail sales, and fixed asset investments fell short of expectations for August.

Silver plays a crucial role in several industrial sectors, including electronics, solar panels, and automotive components. As one of the largest manufacturing hubs globally, China's industrial demand for silver is a key factor in the precious metal's overall consumption.