Silver Prices Forecast: Edging Below Key Support Level as Fed Uncertainty Looms

Silver Prices Slump as Dollar Strengthens and Fed Outlook Shifts

Silver prices are lower on Wednesday, after breaking through a key technical level the previous session, as traders reassessed Federal Reserve policy expectations and the U.S. dollar gained ground. The precious metal’s decline highlights its sensitivity to monetary policy shifts and economic data.

At 11:43 GMT, XAG/USD is trading $28.90, down $0.01 or -0.05%.

Market Performance

July silver futures plunged 2% on Tuesday, decisively breaking below the critical 50-day moving average at $29.925. This technical breakdown could signal further weakness ahead. In contrast, August gold futures showed resilience, trading at $2,331.10 per ounce, down a modest 0.57%.

Dollar Strength Weighs on Silver

The U.S. dollar index climbed to 105.62, up 0.10% on the day. This strength pressures silver prices, as a stronger dollar makes the metal more expensive for holders of other currencies. Silver’s higher industrial demand component compared to gold makes it more susceptible to currency fluctuations and economic growth concerns.

Yield Curve Factor

U.S. Treasury yields edged higher on Wednesday, reflecting shifting expectations about Federal Reserve policy. The benchmark 10-year yield’s upward movement increases the opportunity cost of holding non-yielding assets like silver, contributing to the sell-off.

Federal Reserve Policy Outlook

Recent comments from Fed officials have injected uncertainty into the market. Governor Michelle Bowman stated that current interest rates might be sufficient to control inflation but didn’t rule out further hikes. Governor Lisa Cook suggested rate cuts may be appropriate “at some point.” This mixed messaging has traders recalibrating their expectations for the Fed’s rate path.

Economic Data in Focus

Investors are eagerly awaiting key economic reports that could influence Fed decisions:

1. Thursday: Durable goods orders and weekly jobless claims
2. Friday: Personal Consumption Expenditures (PCE) price index, the Fed’s preferred inflation gauge

These data points will be crucial in shaping market expectations for future Fed actions.

Market Forecast

The short-term outlook for silver appears bearish. The combination of dollar strength, rising yields, and uncertainty surrounding Fed policy could continue to pressure prices. However, traders should remain vigilant for potential shifts in economic data or Fed rhetoric that could quickly alter the market landscape.

Long-term fundamentals, including industrial demand from the green energy sector, may provide a floor for prices. The upcoming PCE report and any surprises in economic data could trigger significant volatility in the silver market. Traders should be prepared for rapid price movements as the market digests new information and recalibrates expectations for Fed policy in the coming months.

Technical Analysis

Silver’s technical picture has deteriorated. The breakdown below the 50-day moving average could trigger further selling. Other technical indicators are signaling weakening momentum. The key support level to watch is $28.66. It’s a potential trigger point for an acceleration into $26.90 to $26.17.