Silver (XAG) Forecast: Will Fed Signals Spark a Silver Rally or Trigger a Pullback?

Silver Pauses After 4-Day Rally

Silver prices are marginally higher on Wednesday, pausing after a four-day rally that brought the metal to its highest level since mid-July. The market’s current rangebound trading reflects investor uncertainty, with the focus shifting to upcoming U.S. Federal Reserve developments. Traders are showing caution as they await the minutes from the Fed’s July meeting and Chair Jerome Powell’s speech at the Jackson Hole symposium later this week.

At 12:25 GMT, XAG/USD is trading $29.63, up $0.19 or +0.66%.

Market Sentiment Ahead of Fed Announcements

Today’s trading range suggests that market participants are indecisive, with the potential for increased volatility ahead. This hesitance could signal a possible shift from bullish to bearish sentiment or simply reflect caution before a round of profit-taking. Contributing to the market’s pause are concerns over potential changes in Fed policy, particularly the possibility of a rate cut in September, which has been widely priced in by traders.

The FedWatch tool indicates a 70% chance of a 25 basis point cut next month. Despite this, silver prices have not capitalized on the weaker dollar and lower Treasury yields, underscoring the market’s anticipation of further Fed guidance.

Geopolitical Factors and Market Trends

Geopolitical tensions, particularly in the Middle East, have also played a role in supporting silver prices. However, recent efforts by U.S. Secretary of State Antony Blinken to broker a ceasefire between Israel and Hamas could lead to a reduction in the “war premium” that has bolstered the metal’s value. Additionally, Chinese demand for gold, driven by a lack of confidence in local banks and shifts away from property investments, continues to support silver prices near their recent highs.

Short-Term Market Forecast

While silver remains on track for a strong year, prices appear vulnerable to a pullback if traders decide to take profits. However, if the Fed’s signals are dovish, silver could briefly spike to $32 before any significant downturn occurs. Traders should closely monitor the Fed’s communications this week, as they will likely set the tone for silver’s short-term performance.

Technical Analysis

XAG/USD is rangebound on Wednesday, but it will maintain a bullish bias as long as it holds above the 50-day moving average at $29.21, which is new support. The market could pick up strength later in the session on a sustained move over the pivot at $29.50.

The daily chart indicates there is plenty of room to the upside over yesterday’s high at $29.97 with $31.76 and $32.52 the primary targets.

If the 50-day MA fails then look out to the downside with the next target coming in around $28.22