Silver Prices Forecast: Federal Reserve’s Rate Debate Could Temper Rally

Silver Market Reactions to Fed Signals

Silver prices soared to their highest level since June 2021 on Thursday, driven by several key factors. The silver market reacted positively to the growing expectations of U.S. interest rate cuts, a scenario bolstered by recent comments from Federal Reserve officials. Additionally, robust demand for gold from Asia, particularly China, and strong central bank gold purchases have supported silver’s ascent. However, prices retreated slightly on Thursday after reaching these highs.

At 12:37 GMT, XAG/USD is trading $26.985, down $0.203 or -0.75% after reaching an intraday high of $27.339.

Fed’s Rate Cut Expectations

Despite the current market optimism, Federal Reserve Chair Jerome Powell and other officials emphasized the need for further debate and data analysis before committing to interest rate reductions. The CME FedWatch tool indicates a 59% probability of a rate cut by the Fed in June. Such a move is typically favorable for silver, as it lowers the opportunity cost of holding the metal, which yields no interest.

Economic Data and Treasury Yields

Investors are now focusing on the U.S. non-farm payrolls data for March, which could provide clearer indications regarding the timing of the Fed’s first rate cut. In the Treasury market, yields have seen slight fluctuations. The 10-year Treasury yield edged higher, reflecting investor responses to Fed officials’ speeches and upcoming economic data releases.

Market Forecast: Bullish Tendency with Caution

Silver’s impressive performance, is being partially fueled by strong central bank buying of gold and demand for safe-haven assets amid geopolitical tensions. Historical patterns suggest a bullish trend for silver following the end of the Fed’s rate hike cycle. However, traders should be wary of potential pullbacks. Overall, the market outlook remains bullish in the short term, with careful attention to forthcoming economic data and Fed actions.

Technical Analysis

Silver prices soared to nearly a three-year high early Thursday before profit-taking and reduced buying fueled a slight retreat. Given the current prolonged move up in terms of price and time, a lower close today will form a potentially bearish closing price reversal top. If the chart pattern is confirmed, we could see the start of a near-term retracement with short-term targets coming in at $26.90 and $26.17.

A trade through $27.34 will negate the pattern and signal a resumption of the uptrend. This move will put $28.23 on the radar.