Silver (XAG) Forecast: Rising Dollar and Yields Keep Silver Under Pressure – Will It Drop Further?

Silver Slides as Dollar Strength and Treasury Yields Weigh Heavily

Silver prices continued to face downward pressure this past week, struggling after failing to maintain the highs from the previous week when the metal briefly touched $32.96 per ounce. The current price action suggests a bearish sentiment, with support now seen around $29.71. Rising U.S. Treasury yields and a strengthening U.S. dollar have been the primary drivers behind silver’s decline, overshadowing the influence of geopolitical tensions in the Middle East.

Last week, XAG/USD settled at $31.54, down $0.67 or -2.07%.

Impact of U.S. Treasury Yields and Dollar Strength

The robust U.S. economic data, particularly the strong labor market performance, has lifted U.S. Treasury yields, which climbed back above 4% this week. This increase has made non-yielding assets like silver less attractive, as higher yields raise the opportunity cost of holding precious metals.

Additionally, the U.S. dollar surged to its strongest level in seven weeks, compounding the negative pressure on silver. A stronger dollar makes silver more expensive for foreign buyers, limiting global demand and keeping silver under pressure.

The labor market’s resilience, with nonfarm payrolls rising by 254,000 in September, also led to reduced expectations for aggressive rate cuts by the Federal Reserve. While the market is still pricing in a possible 25-basis-point cut in November, the strong data has dampened hopes of more substantial monetary easing.

Geopolitical Factors Provide Limited Support

Geopolitical tensions, especially the ongoing conflict in the Middle East, have not provided the same level of support to silver as they have for gold. The conflict has contributed to some safe-haven buying, but silver’s performance remains more closely tied to industrial demand, which has been notably weak.

China, the world’s largest consumer of industrial silver, has shown little increase in demand. Local silver prices in China remain discounted, and the Chinese central bank has refrained from increasing reserves, further limiting silver’s upside potential.

Next Week’s Forecast: Focus on U.S. Economic Data and Fed Policy

Looking ahead to the coming week, silver’s performance will depend largely on further developments in U.S. economic data and the Federal Reserve’s next steps. With the market pricing in a potential 25-basis-point rate cut, traders will be closely watching for any signs that could confirm or alter the Fed’s path. If economic data supports further monetary easing, silver could find renewed buying interest.

However, silver remains at risk of additional downside if U.S. Treasury yields continue to rise or the dollar strengthens further. Key support remains at $29.71, and a break below this level could signal further weakness. On the other hand, geopolitical developments, particularly any escalation in the Middle East, may spur some safe-haven buying, but it is unlikely to drive a significant rally in the absence of stronger industrial demand.

In summary, while silver’s outlook is clouded by rising yields and a stronger dollar, geopolitical risks and potential shifts in Fed policy could offer limited support. Traders should remain alert to U.S. economic indicators and global events as the metal remains vulnerable to further volatility.