Silver Prices Forecast: Fed’s Language Key to XAGUSD’s Short-Term Direction

Key Points

• Silver faces second monthly loss, eyes on Fed.
• Fed’s language crucial for future rate cut indications.
• Economic indicators influence Fed’s policy and silver prices.

Silver Market and the Fed’s Policy Decision

Silver prices are drifting early Wednesday, heading for a second consecutive monthly loss. This trend is largely influenced by investor expectations surrounding the Federal Reserve’s policy decisions and the resilience of the U.S. economy.

At 08:43 GMT, XAG/USD is trading $23.17, up $0.01 or +0.04%.

Fed’s Expected Stance

The market is focused on the Fed’s statement at the end of its two-day policy meeting. While the Fed is expected to leave rates unchanged, the key will be any indications of future rate cuts. Traders have scaled back their expectations of Fed rate cuts for 2024, with the probability of a March rate cut now significantly reduced.

Impact of Fed’s Language

The Federal Reserve’s post-meeting statement is anticipated to provide crucial hints about future interest rate moves. The removal or retention of specific phrases related to policy firming could signal the Fed’s readiness to shift towards rate cuts or maintain its current stance, respectively. This subtle language change could have a profound impact on financial markets, including silver.

Economic Indicators and Market Reaction

Investors are also weighing economic indicators against the Fed’s policy direction. With inflation showing signs of easing and economic growth remaining stronger than expected, the Fed’s balance of policy decisions is crucial. The market is currently pricing in a moderate chance of a rate cut in March, reflecting this cautious optimism.

Short-Term Market Forecast for Silver

In the short term, the silver market is likely to remain sensitive to the Fed’s policy signals. A dovish shift, indicating potential rate cuts, could provide some support to silver prices. However, if the Fed maintains a more hawkish or uncertain stance, silver could continue its downward trend. The upcoming Fed statement and Chair Jerome Powell’s news conference will be critical in setting the direction for silver in the near term.

Technical Analysis

Silver (XAG/USD) is flat-lining on the daily chart early Wednesday, while hovering just below a “Wall of Resistance” formed by the 200-day moving average at $23.48, a resistance level at $23.55 and the 50-day moving average at $23.58.

This resistance cluster is pivotal to XAG/USD’s intermediate and long-term directions. The recent rally has been impressive as it established key support in the $22.00 to $21.88 range. But with the market trading below the 50-day and 200-day moving averages, it’s been nothing but a short-covering rally.

In our opinion, downside pressure will continue to dominate as long as the barrier at $23.48 to $23.58 remains intact. Conversely, taking out $23.58 with conviction could trigger an acceleration to the upside.