Silver Prices Forecast: XAG/USD Slides as Dollar Firms Amid Rate Cut Doubts

Key Points

• Silver prices drop due to robust dollar and March rate cut uncertainty.
• Waller’s remarks affect stocks, lift Treasury yields, and boost the dollar.
• Short-term silver outlook turns bearish amid rising yields and Fed caution.

Silver’s Performance

Silver (XAG/USD) prices are lower on Wednesday trend as the U.S. dollar gained strength following hawkish comments from Federal Reserve official Christopher Waller.

Waller’s remarks have raised doubts about a potential March interest rate cut. In addition to this, traders are keeping a close watch on further comments from other Fed speakers.

The flow of funds into the U.S. dollar has been a significant factor affecting silver prices.

At 08:10 GMT, XAG/USD is trading $22.73, down $0.20 or -0.86%.

Impact of Waller’s Remarks on Treasury Yields and the Dollar

Waller’s comments had a substantial impact on the financial markets. All three major U.S. stock indexes saw declines, and U.S. Treasury yields recorded their most significant daily increase in over three months.

The dollar index rose by 0.1%, making silver more expensive for holders of other currencies. Waller emphasized the need for a cautious approach to lowering interest rates until clear evidence of sustained lower inflation emerges.

Outlook for Fed Policy

The future direction of silver prices appears to be intertwined with the actions and statements of the Federal Reserve. With geopolitical tensions on the rise, silver may find support as a safe-haven asset. However, the immediate fate of silver hinges on developments within the bond market.

Investors are closely monitoring any signs of a rate cut from the central bank, with market expectations shifting slightly in response to Waller’s comments.

Short-term Forecast: Bearish

In the short term, the outlook for silver leans bearish. The strengthening U.S. dollar and Waller’s cautious stance on interest rate cuts have put pressure on silver prices. Additionally, the rapid increase in Treasury yields suggests reduced appetite for safe-haven assets like silver.

Factors that can influence the market today include the release of December retail sales data, which has the potential to fuel concerns about economic growth and recession. Economists predict a modest 0.2% increase for the month, slightly below November’s figure. Traders should also keep an eye on any further statements from Fed officials, as they may impact rate cut expectations.

In summary, silver is facing headwinds due to a stronger U.S. dollar, Waller’s comments, and rising Treasury yields. The short-term forecast is bearish, with attention focused on retail sales data and developments within the Federal Reserve that could sway market sentiment.

Technical Analysis

Silver (XAG/USD) is trading lower on Wednesday, residing below both the 50-day and 200-day moving averages, positioned at 23.60 and 23.62, forming a significant resistance cluster. This confluence of resistance, coupled with minor resistance at 23.55, acts as a formidable barrier determining the market’s short-term trajectory.

Should traders fail to breach this resistance, downside exploration seeking support and new buyers becomes likely. In this scenario, the support level at 22.23 emerges as a plausible near-term target.