Silver Price Forecast: XAG Slides as Investors Tread Cautiously Ahead of Payrolls Data

Highlights

• Robust dollar and strong bond yields weaken silver.
• Rising U.S. interest rates increase silver’s opportunity cost.
• Investors expect silver to drift towards $23.00-$22.00 range.

Overview

Silver (XAG) is grappling with one of its lowest valuations since July 12, battered by strong bond yields, a robust dollar, and flagging gold prices. With the U.S. nonfarm payrolls data set to release on Friday, investors tread a cautious path.

Dollar’s Rise Dampens Silver’s Appeal

As the dollar reached a four-week high, silver became less affordable for foreign buyers, while U.S. 10-year Treasury yields climbed to their highest point since November. Market sentiment has been swayed by recent positive economic data, strengthening the belief that the Federal Reserve might sustain elevated interest rates for an extended period. This speculation has been reinforced by the U.S. private payrolls data released on Wednesday, which demonstrated an unexpected increase in July, suggesting continued resilience in the labor market.

Resilient Labor Market Gives Fed Room for Rate Hike

Despite the Fed’s 525-basis-point interest rate hikes since March 2022, the labor market has displayed substantial strength. Still, this resilience is likely to result in further robust employment gains this July. Coupled with slowing wage growth and tightening labor market conditions, the inflation outlook is showing signs of improvement.

Rising Rates Threaten Silver’s Stability

However, the ascending U.S. interest rates have increased the opportunity cost of holding non-yielding silver, which could potentially push Silver (XAG) prices to drift down towards the $23.00 to $22.00 area. Nevertheless, a strong support base is expected at these levels as we near the end of the interest rate hiking cycle.

Rate Hikes Favor Dollar Over Silver

The anticipation of further rate hikes was fueled by the Bank of England’s recent decision to raise its key interest rate to a 15-year peak. A similar action from the Fed in September will largely depend on the forthcoming Consumer Price Index (CPI) reports. Moreover, the U.S. credit rating downgrade by Fitch and the subsequent failure of gold prices to rally has seen investors shunning risky assets like stocks and commodities, favoring the safe-haven US Dollar instead.

Short-term Outlook

In conclusion, the short-term outlook for silver is bearish due to the robust dollar and the upcoming U.S. jobs data. Investors should be prepared for the possibility of silver prices drifting towards the $23.00 to $22.00 range, pending the release of key economic indicators.

Technical Analysis

The current price of Silver (XAG) is stagnant at 23.53, indicating market consolidation. The commodity is below the 200-4H and 50-4H moving averages of 23.72 and 24.31, signaling a bearish sentiment. The 14-4H RSI at 31.80 suggests an oversold market, possibly foreshadowing a price reversal.

The price hovers just above the main support area (22.70 to 22.28), potentially resisting further selling pressure. The main resistance is at the 25.00 to 25.27 region. Although there are signs of potential recovery, the current market sentiment for Silver (XAG) remains bearish.