Silver (XAG) Forecast: Rising Yields and Strong Dollar Weigh on Silver Prices

Silver Prices Slip as Treasury Yields and Dollar Rise

Silver prices fell on Monday, retreating from a multi-year high of $32.96 per ounce reached in the prior session. Despite this pullback, the main trend remains bullish, with the uptrend expected to hold unless prices break below the $30.88 mark. The 50-day moving average, currently at $29.51, serves as a key downside target if selling pressure intensifies.

Silver’s performance is being influenced by conflicting factors: rising U.S. Treasury yields and a stronger U.S. dollar are applying downward pressure, while geopolitical tensions in the Middle East and expectations of increased Chinese demand are offering support.

At 12:48 GMT, XAG/USD is trading $31.59, down $0.61 or -1.91%.

Treasury Yields Jump as Jobs Data Strengthens Outlook

U.S. Treasury yields climbed on Monday, with the 10-year Treasury yield rising back above 4%, its highest level since August. The yield on the 2-year Treasury also increased, gaining over 6 basis points to 3.99%. The rise in yields follows stronger-than-expected U.S. jobs data from Friday, which showed that nonfarm payrolls grew by 254,000 in September, far exceeding the 150,000 forecast by economists. This robust labor market data has led investors to scale back expectations of aggressive Federal Reserve rate cuts.

As a result, the CME Group’s FedWatch tool now indicates a 91% probability of a quarter-percentage-point rate cut at the Federal Reserve’s next meeting in November. However, some market analysts, including Ian Lyngen of BMO Capital Markets, suggest the Fed might reconsider the wisdom of cutting rates in November following the positive employment data.

Dollar Rallies as U.S. Economy Outperforms

The U.S. dollar extended its rally on Monday, buoyed by Friday’s strong labor market report and rising geopolitical concerns in the Middle East. The dollar index, which measures the currency against a basket of peers, hit a seven-week high of 102.69, marking its largest weekly gain in two years. Analysts now expect the greenback to remain strong in the short term, supported by fading recession concerns and stable economic data.

The stronger dollar, along with higher Treasury yields, is limiting upside potential for silver, as both factors make non-yielding assets like precious metals less attractive to investors.

Market Forecast

In the short term, silver prices are likely to remain under pressure from rising U.S. Treasury yields and a strengthening dollar. However, geopolitical risks and expectations of increased demand from China could provide a floor to prices, preventing a significant drop. Traders should watch for key levels, with $30.88 being the critical support. If silver holds above this level, the uptrend could resume. A breach below, however, could open the door for a deeper correction toward the 50-day moving average at $29.51.