Silver (XAG) Forecast: Dollar Strength and Thin Trading Slam Prices – Is More Downside Ahead?

Silver Slides to Two-Week Low Amid Thin Trading Volume

Silver prices dropped sharply on Monday, reaching a two-week low, as a combination of a firming U.S. dollar, weak Chinese economic data and thin trading volume due to a U.S. bank holiday contributed to the metal’s volatility. The market remains rangebound between $26.47 and $30.19 since August 26. Today’s low at $28.32 occurred just above the pivot point of $28.22.

At 11:46 GMT, XAG/USD is trading $28.59, down $0.28 or -0.96%.

Economic Data and Fed Speculation Weigh on Silver

The silver market is facing downward pressure as investors turn their focus to upcoming U.S. economic data, including the ISM surveys, JOLTS job openings, and the highly anticipated non-farm payrolls report due later this week. This data will be crucial in shaping expectations for the Federal Reserve’s policy decision at its September 17-18 meeting.

The market is currently pricing in a high likelihood of a rate cut by the Federal Reserve, with the CME FedWatch tool showing a 69% chance of a 25-basis-point cut and a 31% chance of a 50-basis-point cut. Lower interest rates typically reduce the opportunity cost of holding non-yielding assets like silver, but uncertainty over the size of the rate cut is keeping traders cautious.

Weak Chinese Manufacturing Data Adds to Industrial Demand Concerns

Adding to the bearish sentiment in the silver market is weak manufacturing data from China, a major consumer of the metal. China’s manufacturing PMI for August fell to 49.1, indicating contraction for the fourth consecutive month and marking a six-month low. This decline raises concerns about industrial demand for silver, which is heavily used in manufacturing processes.

The downturn in Chinese manufacturing activity is compounded by ongoing issues in the country’s property sector and sluggish domestic demand, which are weighing on overall economic growth. As China’s economic challenges persist, the outlook for industrial metals like silver remains uncertain.

Stronger Dollar and Global Economic Concerns Pressuring Prices

The U.S. dollar, which typically moves inversely to silver prices, climbed to a two-week high against the euro, further pressuring the metal. A stronger dollar makes silver more expensive for holders of other currencies, dampening demand.

Global economic concerns, including China’s slowdown and mixed signals from the U.S. economy, are also contributing to the negative sentiment in the silver market. While retail sales in China showed some signs of recovery, the broader economic challenges are likely to keep a lid on silver prices in the near term.

Market Forecast: Bearish Outlook Amid Uncertainty

Given the current economic data and market sentiment, the short-term outlook for silver remains bearish. The metal is likely to stay under pressure as traders await further clarity from U.S. economic reports and the Federal Reserve’s policy decision. Any significant upside in silver prices would likely require more definitive signs of a substantial rate cut from the Fed or an unexpected improvement in global economic conditions, particularly in China.

Technical Analysis

The secondary lower top at $30.19 suggests the presence of sellers. Falling to the weak side of the 50-day moving average at $29.16 reaffirms this assessment.

Two ranges are controlling the price action. The first is $31.76 to $26.47 with a pivot of $29.50. The second is $26.47 to $30.19 with a pivot of $28.22.

The market is currently trading inside the $29.50 to $28.22 pivots. Look for an upside bias on a sustained move over $29.50, and for further weakness under $28.22.

XAG/USD is also trading on the bearish side of the 50-day MA at $29.16. This represents a weak intermediate trend. It’s on the strong side of the 200-day MA at $26.58, which means the long-term trend is still intact.