Silver (XAG) Forecast: Rally Stalls as Dollar Gains, But Fed Rate Cut Hopes Linger

Silver Prices Slip as Dollar Rebounds

Silver prices retreated on Thursday, erasing gains made after Federal Reserve Chair Jerome Powell’s dovish comments. The pullback came as the U.S. dollar rebounded, offsetting the earlier bullish sentiment.

At 11:45 GMT, XAG/USD is trading $28.97, down $0.04 or -0.13%.

Fed Signals Potential Rate Cut

Powell indicated on Wednesday that a September interest rate cut might be considered, suggesting the central bank is nearing the end of its inflation battle. This initially sparked a rally in silver, pushing prices to two-week highs. However, the market’s focus has now shifted to Friday’s U.S. payrolls report.

Market Reaction and Analysis

Peter Fertig, analyst at Quantitative Commodity Research, noted, “Powell putting a possible rate cut in September on the table is supportive for silver. But on the other hand, you now have a slightly firmer U.S. dollar and weaker euro, and that is a negative effect.”

Treasury Yields and Dollar Movements

Despite U.S. Treasury yields hitting multi-month lows on Thursday, the dollar’s strength appears to be the dominant factor influencing silver prices. The inverse relationship between the dollar and commodity prices is playing out, putting pressure on silver.

China’s Economic Concerns

Recent underwhelming GDP data from China has raised concerns about potential demand slowdown. With China manufacturing 60% of the world’s electric vehicles and hosting 95% of global photovoltaic capacity, any economic weakness could significantly impact silver demand.

Looking Ahead

Investors are cautioned not to be short silver near range lows, as geopolitical factors could provide medium to long-term support. The upcoming U.S. jobs report will be crucial, as strong employment data might cast doubt on a September rate cut.

Market Forecast

While silver faces short-term headwinds from dollar strength and potential Chinese demand concerns, the overall outlook remains cautiously bullish. The prospect of rate cuts, combined with silver’s role in green technologies, could support prices in the coming months. However, traders should closely monitor U.S. economic data and Chinese demand indicators for potential market-moving developments.

Technical Analysis

Despite silver’s current weakness, the market remains in a position to extend its two-day rally, but it still faces headwinds at $29.54 and $29.89. The first price is 50% of the break from $31.76 to $27.31. The second price is the 50-day moving average. Overcoming these levels will give buyers a clean shot at $31.76, followed by $32.52.

On the downside, minor support is $28.24. The key support is $27.22. The major support is the 200-day moving average at $25.98.

The price action suggests rangebound activity until the next catalyst emerges.