Silver Prices Forecast: Treasury Yields, Strong Dollar Present Challenges

Silver prices edged lower on Tuesday, remaining slightly above the 50-day moving average of $29.30. Despite this, bullish traders maintain hope. However, a stronger U.S. Dollar and elevated Treasury yields are capping gains. Market participants are eagerly awaiting Federal Reserve Chair Jerome Powell’s comments for clues on the interest rate outlook.

At 11:51 GMT, XAG/USD is trading $29.26, down $0.19 or -0.66%.

Impact of Treasury Yields and Dollar Strength

The benchmark 10-year Treasury yield reached a one-month high on Monday, making non-yielding silver less attractive to investors. Additionally, gold has pulled back 5% from its record high of $2,449.89 per ounce touched on May 20, pressuring demand for silver. The combination of rising yields and a strong dollar presents significant headwinds for silver prices.

Central Bank Activity and ETF Inflows

Recent data indicates a slowdown in central bank gold purchases, with net buying in May decreasing by 56% month-on-month. Poland, Turkey, and India were the largest buyers, while Kazakhstan sold 11 tons. This change in central bank behavior could impact silver demand, although silver enjoys greater industrial use than gold.

In May, global physically backed gold ETFs saw their first inflows in a year, potentially signaling renewed investor interest in precious metals. Saxo Bank forecasts gold and silver to reach $2,500 and $35 per ounce, respectively, by the end of 2024, driven by potential U.S. rate cuts in the second half of the year.

Economic Indicators and Market Sentiment

U.S. manufacturing contracted for the third consecutive month in June, with factory input prices dropping to a six-month low, suggesting that inflation may continue to subside.

Market expectations currently anticipate a 64% chance of Fed rate cuts in September and December, which could support silver prices in the medium term. Traders are closely monitoring Powell’s upcoming remarks, the Fed’s latest policy meeting minutes, and U.S. non-farm payrolls data for potential market-moving information.

Short-Term Market Forecast

The short-term outlook for silver appears mixed. Trading below the 50-day moving average of $2,337.72 suggests potential bearish momentum.

Key bearish factors include the stronger dollar, elevated yields, and slowing central bank gold purchases. However, potential Fed rate cuts, recent ETF inflows into gold, robust industrial demand, and ongoing economic uncertainties present bullish arguments.

Upcoming economic data releases will be critical in shaping market sentiment. Traders should prepare for a potential consolidation phase, with prices likely to move sideways or slightly lower throughout the summer.

A sustained move above the 50-day moving average could signal a shift in sentiment, while continued trading below this level may reinforce the bearish trend.

Silver prices are clinging to the 50-day moving average at $29.30, suggesting investor indecision. A decisive move over this level will signal the return of buyers with $30.59 a potential target. A sustained move under this level could trigger a retest of $28.57. This is a potential trigger point for an acceleration to the downside.