Silver (XAG) Forecast: Bearish Sentiment Grows as Market Straddles $28.22 Pivot

Silver Prices Retreat Amid Market Uncertainty

Silver prices dipped on Tuesday, extending a three-session decline that has seen the metal fall by over 3%. While counter-trend buyers initially emerged to halt the price slide following a test of the near-term pivot at $28.22, the market is set to open on the weak side of the 50-day moving average, signaling bearish sentiment among intermediate trend followers. This downward trend comes as traders grapple with multiple factors influencing the precious metals market.

At 11:55 GMT, XAG/USD is trading $28.19, down $0.37 or -1.30%.

Key Drivers of Silver’s Decline

The retreat in silver prices can be attributed to several factors. Profit-taking has emerged as a significant driver, with investors cashing in gains ahead of crucial U.S. labor market data expected later this week. This data is anticipated to provide insights into the Federal Reserve’s upcoming interest rate decision.

A stronger U.S. Dollar and firm Treasury yields have also contributed to the downward pressure on silver. The dollar’s strength, hovering near a two-week high at 101.68, has made silver less attractive to investors holding other currencies.

Chinese Economic Concerns

Adding to the bearish sentiment, recent Chinese economic data has raised concerns about the world’s second-largest economy. The weaker-than-expected Chinese manufacturing PMI reported over the weekend, coupled with declining new export orders and sluggish housing price growth, has further dampened the outlook for industrial metals like silver.

Fed Rate Cut Speculation

The silver market is currently in a state of flux as traders debate the Federal Reserve’s rate cut strategy. According to the CME FedWatch Tool, there’s a 69% probability of a 25 basis points cut and a 31% chance of a 50 basis points reduction at the Fed’s September meeting. This speculation is crucial for silver traders, as lower interest rates typically boost the appeal of non-yielding assets like precious metals.

Market Forecast

Given the current market conditions, the near-term outlook for silver appears cautiously bearish. The stronger dollar, steady Treasury yields, and uncertainty surrounding the Fed’s rate cut decision are likely to continue weighing on silver prices. However, traders should remain alert to potential shifts in sentiment, particularly if upcoming U.S. labor data surprises to the downside, which could trigger a rebound in silver prices.

Technical Analysis

XAG/USD is currently staddling key short-term pivot at $28.22. Trader reaction to the pivot will set the tone into the close.

A sustained move over $28.22 will signal the return of buyers, but gains could be limited by the 50-day moving average at $29.15 and the pivot at $29.50. Both provide resistance in front of the $30.19 main top.

A sustained move under $28.11 will indicate the presence of sellers. Increased selling pressure will indicate that the bears are looking for the pivot at $27.22 and the 200-day moving average at $26.60.