Silver Prices Forecast: Potential Fed Rate Cuts Driving Strong Demand

U.S. Economic Data Influences Silver Prices

Silver prices climbed on Monday, supported by a softening U.S. dollar in response to disappointing job data, which has fueled trader speculation about potential Federal Reserve rate cuts this year.

At 12:31 GMT, XAG/USD is trading $27.05, up $0.49 or +1.84%.

Economic Indicators and Treasury Yields

The U.S. job market underperformed in April, with only 175,000 new jobs added—significantly lower than the expected 240,000, as reported by the Bureau of Labor Statistics. The unemployment rate unexpectedly increased to 3.9%, and wage growth decelerated, suggesting possible labor market cooling. This situation is influencing the Fed’s interest rate decisions.

Meanwhile, Treasury yields fell, with the 10-year yield decreasing by 2 basis points to 4.475% and the 2-year yield dropping by 1 basis point to 4.789%. This shift in yields reflects a growing anticipation of a less aggressive Fed.

Dollar Weakness and Silver Pricing

Following the employment report, the dollar index reached a three-week low of 104.52, enhancing the attractiveness of silver as it becomes more affordable in other currencies. The lower interest rates anticipated could further reduce the opportunity cost of holding non-yielding assets like silver.

Short-Term Market Forecast

Given the current economic indicators and market sentiment, the outlook for silver is bullish in the short term. The likelihood of a Fed rate cut by September, now seen as a 71% probability according to CME’s FedWatch Tool, should continue to support higher silver prices. Investors and traders should watch closely for further Federal Reserve communications, which could provide additional insights into the central bank’s policy direction amid evolving economic conditions.

Technical Analysis

XAG/USD is trading higher on Monday after breakout out of a four-day range. The move puts it within striking distance of a swing top at $27.73. A trade through this price will shift momentum to the upside, while changing the short-term trend to up.

On the downside, a trade through $26.02 will reaffirm the short-term downtrend. This could lead to a test of the 50-day moving average at $25.86. This indicator is controlling the intermediate-term trend.