Silver (XAG) Forecast: High Yields and Dollar Surge Challenge $31.29 Support Level

Strong Dollar, Yields, and China’s Fiscal Strategy Weigh on Sentiment

Silver prices fell sharply on Wednesday, hovering near the critical 50-day moving average at $31.29, as surging U.S. Treasury yields and a robust dollar pressured the metal. Currently testing this support level, silver’s next target could be the $30.67 pivot point. Analysts note that while a technical rebound may occur at this level, failure to hold it could signal a sharper decline toward the 200-day moving average at $28.49.

Dollar Surge Intensifies Pressure on Precious Metals

The U.S. dollar rallied to a four-month high, gaining 1.4% in response to expectations of former President Donald Trump’s projected return to the White House and strengthened Republican control in Congress. The stronger dollar, which appreciated against currencies like the Mexican peso and Swiss franc, has made precious metals like silver more expensive for non-U.S. buyers. This trend, coupled with surging yields, has caused a broad sell-off in the precious metals sector, with silver particularly vulnerable due to its industrial reliance, which ties it closely to global growth dynamics.

The ICE U.S. Dollar Index hit its highest level since July, buoyed by the potential for a pro-business fiscal policy under Trump’s leadership. Such policies, including tariffs and trade strategies, could continue to bolster the dollar, reducing silver’s appeal as a non-yielding asset.

Treasury Yields Reach New Highs, Challenging Non-Interest-Bearing Assets

Rising Treasury yields, with the 10-year yield reaching 4.47%, added further downward pressure to silver and other non-yielding assets. Yields have jumped amid speculation that Trump’s policies could drive economic growth, fueling inflation and further interest rate hikes by the Federal Reserve. Increased yields heighten the opportunity cost of holding assets like silver, where investors seek higher returns elsewhere.

The Federal Reserve is expected to announce its latest policy decision on Thursday. Although markets generally expect a 25-basis point cut, any indications of a slower pace or pause in rate cuts could support the dollar’s strength, placing additional pressure on silver and gold prices.

China’s Fiscal Stimulus in Focus as U.S. Tariff Threat Looms

The U.S. election results are also shaping China’s economic strategy, with analysts expecting Beijing to expand its fiscal stimulus in response to potential tariff increases under Trump. The National People’s Congress is meeting this week to consider a stimulus package estimated between 6 and 10 trillion yuan (about $844 billion to $1.4 trillion) in sovereign and local bonds. Goldman Sachs analysts noted that if Trump imposes new tariffs, China may intensify stimulus efforts to mitigate the economic impact, potentially increasing the package by 10-20%.

For silver, which relies heavily on China’s industrial demand, the size and speed of this fiscal intervention could play a critical role in market sentiment. However, some economists caution that Beijing’s response may be gradual, serving more as a buffer than a transformative boost for the metal.

Market Outlook

In the short term, silver remains under bearish pressure, with a potential decline toward $30.67 and, if breached, further downside to the 200-day moving average at $28.49. A stronger dollar, paired with elevated yields and a cautious Fed stance, reinforces the likelihood of continued headwinds.

Unless China’s stimulus materializes at an aggressive scale, the silver market may face further selling pressure in the near term. Traders should monitor upcoming Fed language and fiscal developments out of China, as these will be key to determining whether silver can find support or extend its recent losses.