Silver Prices Forecast: Bracing for Steep Break Amid Hawkish Fed, Strong Dollar

Key Points

• Hawkish Fed reduces silver’s appeal in rising rate environment.
• Strong dollar, high yields lead to lower silver demand.
• Silver’s near-term outlook appears bearish amid economic pressures.

Silver’s Short-Term Decline: Fed Policies, Yields, and Dollar Strength

Silver prices are trending lower in the short term, influenced by key economic factors: a hawkish Federal Reserve, rising Treasury yields, and a stronger U.S. Dollar. These elements are pivotal in determining silver’s demand and price trajectory.

At 07:15 GMT, XAG/USD is trading $22.54, down $0.15 or -0.65%.

Federal Reserve’s Cautious Rate Strategy

The Federal Reserve, under Chair Jerome Powell, is adopting a careful approach to interest rate cuts, potentially implementing fewer cuts than market expectations. Powell’s recent statements suggest a reduction in cuts, possibly only three this year, as opposed to the previously anticipated five. This cautious stance diminishes the appeal of non-yielding assets like silver, as investors tend to favor assets with yields in a rising rate environment.

Treasury Yields on the Rise

Following an unexpectedly strong January Non-Farm Payrolls report, with 353,000 new jobs far exceeding the forecasted 185,000, Treasury yields have spiked. The yield on 10-year Treasury notes has crossed 4%, making yield-bearing assets more appealing compared to silver.

Strong Dollar’s Impact

The Dollar Index, reaching a peak of 104.18, its highest since December, adds to silver’s woes. A stronger dollar increases the cost of silver for international buyers, reducing its global demand.

Market Outlook and Forecast

Considering these factors, the outlook for silver in the near term is bearish. The cumulative effect of the Fed’s rate strategy, higher yields, and dollar strength is likely to continue exerting downward pressure on silver prices.

Unless there are significant changes in these economic conditions or emergent bullish catalysts, silver is expected to maintain this downward trend, potentially testing lower support levels in the coming months. This bearish trend provides a cautious outlook for silver investors looking forward.

Technical Analysis

Both the intermediate and long-term trends are pointing lower and have been since January 3 when XAG/USD crossed to the bearish side of the 50- and 200-day moving averages. While trading over a month in a weak position, the market is likely to continue to head lower with support at $23.23 the next target.

Technically speaking, the “trend is your friend” in this case and we think sellers will continue to press for lower prices until there is a decisive move over the “Wall of Resistance” formed by the 200-day MA at $23.44, the 50-day MA at $23.52 and the static resistance level at $23.55.

The major support zone at $22.23 to $21.88 is expected to be tested on this current sell-off.