Silver Prices Forecast: Gains Capped by Rising Yields, Strong Dollar

Fed and Interest Rate Decisions

Silver prices remained steady on Thursday, influenced by Federal Reserve Governor Christopher Waller’s remarks regarding interest rate policies. Waller’s guarded approach towards rate adjustments, coupled with upcoming U.S. economic data, has captured the attention of the market. The release of the PCE Inflation Index on Friday is especially critical, offering insights into the Fed’s strategy for inflation management.

At 11:03 GMT, XAG/USD is trading $24.65, down $0.01 or -0.01%.

Silver Price Movement

Silver prices have been confined within a tight range this week, yet show potential for an upward shift. Surpassing $25.78 will negate last week’s bearish reversal, making $26.00 an easy target. This trend is underpinned by support at $24.00, spurred by speculations around the Federal Reserve’s policy direction.

Treasury Yields and Monetary Policy Effects

U.S. Treasury yields have risen as investors mull over the future course of interest rates. Waller’s indication of possibly extended high rates for inflation control has significant implications. The bond market’s response, along with incoming inflation data, will be crucial in determining the Fed’s upcoming decisions.

US Dollar Strength

The U.S. Dollar has strengthened post-Waller’s comments, gaining ground against major currencies. This development, reflecting a recalibrated market outlook for a June rate cut, has bolstered the dollar index. Upcoming inflation figures will be a key influencer of the dollar’s path and could modify current market expectations regarding rate cuts in 2024.

Federal Reserve’s Policy Approach

The Federal Reserve, as represented in Waller’s statements, is pursuing a cautious policy regarding interest rate adjustments. While the prospect of rate cuts exists, their timing and scale depend on forthcoming economic data, with a focus on inflation. The Fed’s strategy is to maintain a balance, steering clear of premature rate reductions that could trigger inflationary pressures.

Short-term Market Outlook

The silver market presents a bullish stance in the short term, provided $24.32 holds as support. However, it lacks the strong central bank demand that is boosting gold prices.

The expectation of pivotal economic reports and the Federal Reserve’s restrained stance on rate cuts are poised to support silver prices. Investors should closely track U.S. economic updates and Federal Reserve communications. The U.S. dollar’s performance and Treasury yield trends will be instrumental in shaping the near-term direction of the silver market. If both continue to strengthen, silver prices are likely to be capped.

Technical Analysis

Silver (XAG/USD) is in an uptrend, but struggling to gain upside traction since last Thursday’s dramatic technical reversal top. The problem is demand. There seems to be enough to provide support, but not enough to drive upside momentum. Nonetheless, the market will remain in a short-term uptrend unless $24.00 is violated.

As a trader, downside risks should be a priority. In a bull market, the upside takes care of itself, but a shift to the downside could be unforgiving with room to fall into the 50-day and 200-day moving averages at $23.43 and $23.26, respectively.