Silver Price Forecast: Weaker Amid Investor Caution, Fed Speculation

Headline

• Silver declines as investors lighten long positions post-surge.
• Focus is on U.S. Treasury yields and the Dollar for guidance.
• Caution due to Fed’s stance and China’s economic growth.

Overview

Comex silver experienced a slight decline on Monday as some investors decided to lighten up on their long positions following last week’s surge to a multi-month high. The focus for traders is primarily on U.S. Treasury yields and the U.S. Dollar, which are serving as guidance indicators.

Supported by Potential Rate Hike Pause

Last week, silver prices spiked higher in response to signs of cooling inflation, leading to hopes of a potential pause in U.S. interest rate hikes. This positive sentiment was driven by data revealing the smallest annual increase in U.S. consumer prices in over two years, creating speculation that the Federal Reserve might soon conclude its rate-hike cycle. As a result, silver reached its highest level since May 11.

Yield Rebound Capping Gains

While the decline in inflation and reduced expectations for further rate hikes have supported silver, prices have been capped by a recent uptick in yields. Benchmark U.S. yields experienced a slight increase, making non-yielding silver relatively less attractive to investors.

Rangebound Outlook Ahead of Fed Meeting

In the near term, silver prices are expected to remain range-bound until the Federal Reserve’s announcements next week. If the Fed signals a shift away from further rate hikes, it could potentially fuel additional gains for silver.

Fed Official:  Higher Rates Possible

However, caution remains as Fed Governor Christopher Waller recently stated that he was not ready to declare an all-clear on inflation and favors rate hikes this year, as indicated in June’s FOMC minutes. Higher interest rates increase the opportunity cost of holding zero-yield silver.

China’s Slower Growth Could Hurt Demand

In addition to the Fed’s actions, another key factor to monitor is China. As the top consumer of gold, China’s economy experienced slower growth in the second quarter compared to the first quarter. Market expectations are that Chinese authorities will implement more stimulus measures to support growth, which could have a spill-over effect on the silver market and potentially increase demand for the precious metal.

Short-Term Forecast:  Cautious Ahead of Fed

Overall, while the long-held bullish view on precious metals has been reinforced, caution is warranted due to the risk of the Fed maintaining its hawkish stance and potential developments in China’s economic stimulus efforts.

Technical Analysis

Market sentiment is still bullish for Comex Silver as the current 4-hour price of $25.055 is higher than the previous close, but the buying pressure is not as strong as it was last week.

The 200-4H moving average of $23.544 and the 50-4H moving average of $23.808 both indicate an upward trend. However, the 14-4H RSI reading of 71.51 suggests an overbought condition, signaling a potential correction or consolidation.

The main support area ranges from $22.485 to $22.720, while the main resistance area is between $25.970 and $26.435. With the current price within the main resistance area, traders should closely monitor the market for potential barriers to further upward movement.

Comparing the current price to the location of the moving averages and the support indicates there is plenty of room to the downside if momentum shifts lower.