Gold (XAU/USD) & Silver Price Forecast: Fed Hike Looms as 10-Year Yield Tops 5%

Gold & Silver Outlook: Fed Hike Looms as 5% Treasury Yield Tests Precious Metals

Gold and silver started the week with tightening U.S. financial conditions and geopolitical uncertainties as the Federal Reserve begins its two-day meeting.

Markets are almost fully priced in for a 25 basis-point hike on Wednesday, taking the Federal Funds rate target to a range of 3.75% to 4.00%. In a Reuters poll, 86 of 101 economists expect the hike, a complete reversal from last week’s poll, while interest rate futures are implying almost a 90% chance of a hike. This comes as recent August inflation figures and positive U.S. economic data have shown the economy is still growing, contradicting the expectation for the Fed to pause.

For now, the bond market is the more important concern for precious metals. The U.S. Benchmark 10-year yield crossed the 5% mark for the first time since October 2023, making the opportunity cost of holding Gold higher. With markets less concerned about the Fed hiking and more concerned about what Chair Kevin Warsh indicated, a more forward guidance indication that Wednesday starts a broader rate hike cycle will be a greater fundamental headwind.

Counter to the above, geopolitical fluctuations continue to be more supportive. A repeat of weekend attacks by Iran-aligned Houthis on Saudi Arabia has continued to create disruptions to Middle East energy supplies, making the defensive assets needed more supportive. While the resulting inflation has increased the case for tighter Fed policies, the need for Middle East defensive assets remains.

Silver shares the rate-and-yield stress that plagues gold. The combined impact of industry and worrying longer-term manufacturing and investment demand erosion from elevated borrowing costs may intensify the impact of industrial demand. Fortunately, the physically tight market serves as a supportive anchor.

Fundamental bias: Gold neutral-to-bearish, Silver neutral-to-bearish, with Wednesday’s Fed guidance being more significant than the expected rate hike.

Gold Technical Analysis: XAU/USD Holds $4,283 Support as $4,316 Resistance Caps the Recovery

Currently, gold is trading at $4,293 and my focus is on the price trading under both moving averages and the descending trendline. The latest move to reverse the bearish trend has yet to break the $4,316 resistance, substantiating the presence of an active bearish trend.

The first support to break would be $4,283. Should that level break, further downside would be seen at $4,252, $4,223 & $4,197 respectively. As for the upside, $4,316 holds the first level of significance, with $4,355 and $4,402 holding importance as the buying pressure returns.

Currently, RSI is below the midline and thus bearish. I am inclined to be bearish below $4,316 – $4,355, the descending trendline and below $4,316 respectively. I would be bullish above $4,352, but bearish below $4,283.

Silver Technical Analysis: XAG/USD Stays Below $63.76 as $62.34 Support Remains Vulnerable

Silver is currently trading at $63.16 on the hourly chart. The moving averages and the descending trendline are all positioned above price. The latest recovery has straddled a falling resistance at $63.76. This keeps the short term trend structure bearish.

If price breaks below the $62.34 support level we could see price test the $61.31, $60.81, and $60.30 levels. Conversely, $63.76 could provide resistance as could the $64.16 and $64.66 levels.

United States dollars

I am watching the first support at $62.34. A clean break below this will open $61.60, followed by $60.81. $63.76 is the first major resistance, with $64.51 and $65.28 becoming active in the event of buying pressure to recover structure.

RSI is still below the midline, with the momentum still assessed as being weak, rather than oversold. I am bearish with silver under $63.76-$64.51. A sustained hourly close above $64.51 will change this outlook, while breaking $62.34 will suggest more pressure on the downside.