Silver (XAG) Forecast: Dollar Strength and Yields Pressure Prices; Can Fed Rate Cut Offer Relief?

Dollar Strength and Treasury Yields Squeeze Silver

Silver prices have faced mounting pressure in recent weeks, weighed down by a strong U.S. dollar and rising Treasury yields that have made non-yielding assets like silver less appealing. Although silver attempted to rally early in the week, it faced resistance at key levels such as $34.87 and $35.40.

Last week. XAG/USD settled at $32.45, down $1.27 or -3.77%.

A brief de-escalation in Middle East tensions has also trimmed some of the geopolitical risk premium that previously buoyed safe-haven demand for silver. Meanwhile, the dollar strengthened following the latest economic data, reinforcing headwinds for silver amid heightened market caution​​.

Weak Jobs Data Casts Doubt on Fed’s Next Move

The October nonfarm payroll report showed a marked slowdown in job creation, with only 12,000 new jobs added against Wall Street’s forecast of 100,000. Hurricanes and strikes at Boeing and Textron were cited as factors behind the subdued jobs data, and while the U.S. unemployment rate held steady at 4.1%, signaling labor market resilience, the muted payroll figure has fueled expectations of a Federal Reserve rate cut by 25 basis points at its November 7 meeting.

Fed watchers expect that lower rates could provide a tailwind for silver by reducing the dollar’s strength and easing Treasury yields, both of which would make non-yielding assets like silver more attractive. Goldman Sachs’s Lindsay Rosner noted that while recent data may reflect temporary setbacks, the Fed is likely to view the broader economic softness as a reason to extend its easing cycle, lending potential support to silver if the dollar weakens​​.

Election Uncertainty Spurs Safe-Haven Demand

With the U.S. Presidential election days away, the close race between Donald Trump and Kamala Harris has raised concerns of a drawn-out or contested outcome. Political uncertainty has historically boosted demand for safe-haven assets, and a turbulent election result could drive renewed interest in silver as a hedge against market volatility.

However, the dollar’s recent rally complicates the picture. The dollar index rose 0.36% to 104.24 on Friday, reflecting investor anxiety about potential election disruptions and the Fed’s upcoming rate decision. For silver, the election outcome could significantly impact market sentiment, especially if investors seek security amid potential policy gridlock or delayed results​.

Silver Market Outlook: A Week of Critical Catalysts

With the Fed meeting and the election both set to unfold next week, silver markets are braced for potentially sharp movements. Should the Fed deliver a rate cut, silver could gain momentum, testing resistance at $34.87 and $35.40 if the dollar and yields soften. However, if the Fed holds off on further cuts or signals caution, silver could struggle, especially if Treasury yields push higher and the dollar extends its rally. If the downside momentum continues then look for the selling to possibly extend into $30.44 to $30.12.

In a crucial week for the markets, silver stands at a crossroads, with political and economic forces poised to set the trend for the months ahead. Traders should prepare for heightened volatility, as both the election outcome and Fed policy decision could reshape silver’s appeal heading into year-end.