Silver (XAG) Forecast: Prices Retreat After Recent Highs, Can the Rally Regain Momentum?

Silver Struggles After Reaching Multi-Year Highs

Silver prices are retreating on Wednesday after hitting a multi-year high of $34.87 during the previous session. Despite this surge, the market is facing resistance at $35.40 and needs to hold support at $34.35 to maintain upward momentum. A failure to defend this support level could trigger profit-taking and push prices lower, with $32.52 being a potential target.

Although silver is trending strongly, it is now significantly above its 50-day moving average of $30.57, increasing the risk of a near-term correction. Long-term investors may view any pullback as a buying opportunity.

At 11:19 GMT, XAG/USD is trading $34.61, down $0.25 or -0.72%.

Treasury Yields Rise, Adding Pressure on Silver

U.S. Treasury yields have been climbing, reaching three-month highs, which has supported the dollar but put additional pressure on silver. The 10-year yield hit 4.2316% as traders reconsider how much more the Federal Reserve might ease interest rates after recent economic data showed continued strength in the U.S. economy. Higher yields typically make non-interest-bearing assets like silver less attractive, but the metal has managed to hold up, as risk-averse investors look for safe-haven alternatives amidst ongoing geopolitical tensions in the Middle East.

Election Uncertainty and Strong Dollar Influence Silver

Silver has also benefited from safe-haven demand as the upcoming U.S. election adds uncertainty to the markets. Investors are bracing for potential volatility with less than two weeks until election day. The chances of Donald Trump defeating Kamala Harris have risen slightly, but polls remain tight. Meanwhile, the U.S. dollar has strengthened as expectations for deep interest rate cuts have diminished. This has typically pressured precious metals, but silver has defied this trend, rallying alongside gold as a hedge against political and economic instability.

Russian Central Bank Moves into Silver

A major development in the silver market is Russia’s decision to include silver in its central bank reserves for the first time. This move is part of a broader effort to diversify its precious metal holdings, which already include gold, platinum, and palladium. The addition of silver could increase demand, potentially supporting prices over the medium term. Historically, central banks have focused on gold, but this diversification may indicate that silver is undervalued. Analysts predict this could lead to a 50% price increase over the next two years, driven by both central bank demand and industrial uses, such as photovoltaics and electronics.

Short-Term Forecast

In the short term, silver remains at a critical juncture. While long-term fundamentals, including industrial demand and central bank purchases, are bullish, near-term risks are rising. A failure to hold above $34.35 could lead to a corrective phase, potentially driving prices down toward $32.52. However, if silver can consolidate and break past the $35.40 resistance, the next leg higher could unfold. For now, traders should watch for volatility surrounding the U.S. election and the Federal Reserve’s next moves on interest rates.