Silver Prices Forecast: Bearish Outlook Amid Fed Policy, Middle-East Uncertainty

Highlights

• Middle East conflict influences silver’s safe-haven appeal.
• Fed comments and Treasury yields restrain silver prices.
• Bearish sentiment dominates, according to the government’s Committment of Traders report.

Balancing Act Between Geopolitical Risks and Economic Indicators

In a tug-of-war between geopolitical risks and domestic economic forces, silver (XAG/USD)  finds itself precariously poised. The metal, often considered a barometer for investor sentiment, is being buffeted by conflicting signals. With mixed cues coming from geopolitical tensions, Federal Reserve policies, and key economic data, traders are left wondering: what’s the next move for silver?

Middle East Conflict and Safe-Haven Appeal

A few weeks ago, escalating hostilities between Israel and Hamas had investors flocking to silver as a safe-haven asset. This boosted its prices, offering a temporary relief rally. However, recent developments indicate a potential thaw in the Middle East crisis, with increased focus on humanitarian aid and diplomacy. This could dampen silver’s appeal as a risk-off asset, thus applying downward pressure on its price.

Influence of the Fed and U.S. Treasury Yields

Adding to the market’s uncertainty is Federal Reserve Chairman Jerome Powell’s recent commentary. Powell hinted that curbing inflation might necessitate lower economic growth, a statement that sent U.S. Treasury yields soaring to multiyear highs. Higher yields traditionally create a headwind for non-interest-bearing assets like silver. Specifically, the 10-year Treasury yield recently peaked at over 5%, a level not seen since 2007, restraining silver prices below the $24.05 mark.

Upcoming Economic Indicators

Traders are keenly awaiting a slew of economic data that could tip the scales for silver. Top of the list are the U.S. PCE price index, the Fed’s preferred inflation measure, along with Q3 GDP figures. Additionally, decisions from the European Central Bank and global flash PMIs are on the radar. These data points could either substantiate or alleviate current inflation fears, thereby influencing silver’s direction.

Commodity Exchange Inc. Report and Market Sentiment

The latest report from the Commodity Futures Trading Commission (CFTC) for the week ending 10/17/23 highlights a bearish undertone. Despite some bullish leanings among non-commercial traders, commercial traders have ramped up their short positions. A whopping 89.0% of the open interest is in short contracts, indicating a bearish sentiment dominating the market.

Short-Term Forecast: Leaning Bearish

Given the preponderance of short positions, particularly among commercial traders, and a high percentage of open interest being short, the short-term outlook for silver appears bearish. Coupled with the potential easing of geopolitical tensions and pending economic indicators, traders should brace for potential downside risks in the near term.

Technical Analysis

The current daily price of silver (XAG/USD) at $23.30 is slightly below its 200-day moving average of $23.32, suggesting a neutral to bearish sentiment. It’s also hovering above its 50-day moving average of $22.94, indicating some recent bullish momentum.

In terms of support and resistance, the asset is trading just below the minor resistance of $23.55 and above its trend line support of $22.23. While the price is confined between the trend line support and resistance levels of $22.23 and $24.21, a breakout in either direction could significantly influence momentum.

Given this data, the market sentiment leans more neutral with a bearish undertone.