Silver Prices Forecast: Rising Yields, Fed Rate Stance Capping Gains

Key Points

• Hawkish Fed Increases Treasury Yields, Silver Prices Drop
• Strong Dollar Dampens Global Silver Demand
• Contrasting Forces Stabilize Silver, Bearish Outlook Emerges

Fed Policy and Treasury Yields

The Federal Reserve’s stance on interest rates is a critical determinant for U.S. Treasury yields, which in turn significantly influences silver prices. When the Fed adopts a hawkish position, indicating reluctance to lower interest rates, Treasury yields tend to remain firm or rise.

Higher yields increase the opportunity cost of holding non-yielding assets like silver, as investors may opt for yield-bearing treasury securities. This scenario typically leads to a decrease in silver demand, exerting downward pressure on its price.

At 07:28 GMT, XAG/USD is trading $22.36, up $0.14 or +0.65%.

USD Strength and Silver Market

The U.S. dollar’s performance, closely linked to Federal Reserve policies, also plays a pivotal role in determining silver prices. A stronger dollar, which may result from the Fed’s tighter monetary policy or positive U.S. economic data, renders silver more expensive for investors using other currencies. This dampens global silver demand.

Recent strength in the dollar, reacting to Fed officials’ cautious remarks on rate cuts and robust U.S. economic indicators, has capped silver’s upward momentum.

Contrasting Market Forces

Currently, silver traders are contending with a market influenced by contrasting forces. On one side, the potential global banking crisis and geopolitical tensions drive safe-haven buying, supporting silver prices. Conversely, the Federal Reserve’s delay in interest rate cuts and a strong dollar create headwinds for silver. This dual influence has led to a stabilization in silver prices, but with a leaning towards bearish tendencies given the Fed’s current outlook.

Economic Indicators and Trader Focus

In the near term, traders should focus on key U.S. economic data releases, including inflation reports and jobless claims, for guidance on the Fed’s rate path. Strong data could reinforce the Fed’s current stance, potentially leading to sustained or higher Treasury yields and a robust dollar, both of which would weigh on silver prices.

Short-Term Market Forecast

Given the Federal Reserve’s current policy direction and the strength of recent U.S. economic data, the short-term forecast for silver leans towards bearish. The prospect of delayed or fewer rate cuts, combined with a resilient dollar, suggests a downward trend for silver prices.

However, ongoing geopolitical risks and uncertainties in the banking sector could provide some support, limiting significant downside movements. Traders should remain vigilant, monitoring upcoming economic data and Fed communications for market direction clues.

Technical Analysis

XAG/USD is edging higher on Thursday, which could be a knee-jerk reaction to support at $22.23 earlier in the session.

Since late January, buyers have found the $22.23 – $21.88 support area attractive. However, with the downtrend clearly establised, prices are going to have to form a support base if the market has any chance of breaking through the 50-day moving average and 200-day moving averge at $23.37 to $23.40.

Conversely, a sustained move under $22.23 will be the first sign of weakness, while a break under $21.88 could trigger the start of an acceleration to the downside with $20.66 a potential downside target.