XAG/USD price adjustment shows three strong 'bottom support' signals… Fed rate cut expectations are key

Spot Silver Enters a Cycle Adjustment but Limited Downside

In the Asia trading session, spot silver(XAG/USD) has fallen to around $64.95 per ounce. This appears to be a short-term profit-taking sell-off following a record high. However, market participants predominantly believe that “this is only a temporary correction and does not indicate a reversal of the underlying trend.”

Slowing Inflation Sparks Possibility of Additional Fed Rate Cuts

Thursday’s US economic data is playing a key role as an important variable. According to the latest data from the US Bureau of Labor Statistics(BLS), the November Consumer Price Index (CPI) declined to 2.7% year-over-year. This is 0.4 percentage points below the market expectation of 3.1%.

More notably, the core CPI, which excludes volatile food and energy prices, rose by 2.6%, below the consensus 3.0%, marking the slowest growth rate since 2021.

As inflation slows more than expected, the Federal Reserve(Fed) has increased the scope to cut interest rates further to improve the weakening labor market. When rates decrease, the opportunity cost(opportunity cost) of holding non-yielding precious metals like spot silver diminishes, acting as a price support mechanism.

Geopolitical Instability and Strengthened Safe-Haven Demand

Rising tensions between the US and Venezuela are also a structural factor supporting precious metal demand. According to The New York Times, the Venezuelan government has issued orders for naval escorts for ships transporting oil cargo. This suggests that the risk of actual conflict between the two countries has intensified since the Trump administration’s “blockade”(blockade) policy on Venezuela’s oil industry.

In such geopolitical uncertainty, a pattern often repeats where capital flows back into traditional safe assets like gold(gold) and silver during risk asset corrections. As a result, these assets can act as support levels that limit the decline of XAG/USD.

Overall Assessment: Short-Term Correction, Fundamental Support Key

Ultimately, the current silver correction is seen as a natural profit-taking process during a rapid rally. The combined effects of increased likelihood of Fed rate cuts and heightened safe-haven demand due to geopolitical risks have strengthened the fundamental support levels. As the economic calendar approaches next week’s key economic data releases, it is important to watch whether this support remains robust.