Silver Price Forecast: XAG/USD remains close to $54.50 near record highs

• Silver price maintains its position near an all-time high of $54.86, reached on Thursday.
• The precious Silver metal receives support from credit market concerns in the United States.
• Robust Indian demand tightened supply, leading mutual fund houses to halt inflows into their Silver ETF fund-of-fund schemes.

Silver price (XAG/USD) extends its three-day rally, trading around $54.30 per troy ounce during the Asian hours on Friday. The price of the grey metal remains close to the record high of $54.86, reached in the previous session amid increased safe-haven demand. The market sentiment turned cautious following the disclosures from two US regional banks, Zions Bancorporation and Western Alliance, about troubled loans.

Silver price surged amid a historic squeeze in London, where dwindling liquidity has triggered a global scramble for the metal. Strong demand from India has further tightened supply, prompting several mutual fund houses to suspend inflows into their Silver ETF fund-of-fund schemes.

Silver attracts buyers due to increased risk aversion, which could be attributed to the escalating United States (US)-China trade tensions. US Trade Representative Jamieson Greer and Treasury Secretary Scott Bessent criticized China's plans to restrict rare earth exports, calling them "economic coercion" and "a global supply chain power grab." Bessent warned, "If China wants to be an unreliable partner to the world, then the world will have to decouple."

Additionally, the precious metals, including Silver, gain ground amid risk-off sentiment, driven by the prolonged US government shutdown. The impasse will continue into next week as the US Senate once again failed to pass a Republican bill to extend funding and end the stalemate.

The non-yielding Silver receives support from the increased likelihood of further rate cuts by the US Federal Reserve (Fed). The CME FedWatch Tool indicates that markets are now pricing in nearly a 97% chance of a Fed rate cut in October and an 83% possibility of another reduction in December.

Fed Governor Christopher Waller stated on Thursday that he supports another interest rate cut at this month's upcoming policy meeting. Meanwhile, the Fed's newest governor, Stephen Miran, reiterated his call for a more aggressive rate-cut trajectory for 2025 than that favored by his colleagues. The Fed's Beige Book pointed to growing economic strains, citing rising layoffs and weaker spending among middle- and lower-income households.