Silver Prices Forecast: Bullish Outlook Tempered by Overbought Concerns, Strong Dollar

Follow-Through Selling on Friday

Silver is trading sharply lower on Friday, following through to the downside after posting a bearish closing price reversal top the previous session. This ongoing trend is largely influenced by a strengthening dollar, which is also contributing to silver’s weekly loss.

At 11:44 GMT, XAG/USD is at $24.56, down $0.18 or -0.73%.

Market Influences

On Thursday, silver reached its highest point since early December, initially driven by the Federal Reserve’s indication of potential interest rate cuts in 2024. This development is boosting silver’s appeal, but the rising strength of the dollar is quickly reversing these gains. As the dollar reaches a three-week high, it is making silver more expensive for holders of other currencies, overshadowing the Fed’s dovish intentions.

Key Support Levels

In the face of the rally, silver is showing signs of being overbought, with the $24.00 level emerging as a pivotal support point. If this level is broken, it might signal a more significant downward trend.

Federal Reserve’s Impact

Fed Chair Jerome Powell’s comments on U.S. inflation trends and the expected rate cuts are central to the ongoing movements in silver. These cuts, once implemented, would reduce the opportunity cost of holding non-interest-bearing assets like silver. Futures traders are actively betting on these rate cuts, which are significantly contributing to the recent surge in silver prices.

Outlook and Forecast

Despite the dollar’s current strength briefly halting silver’s rally, the market’s sentiment is predominantly bullish. This optimism stems from factors like the anticipated rate cuts and central bank buying of gold. Silver is increasingly being viewed as an attractive hedge in equity portfolios for 2024. The long-term bullish trend is supported by accommodating monetary policies and a positive market outlook. However, the market is presently showing a preference for value rather than chasing higher prices.

Short-Term Market Forecast

The short-term forecast for silver leans towards bullish, with cautious optimism. The expectation of lower interest rates and sustained interest in gold by central banks and hedge funds are likely to underpin silver prices. Although current overbought conditions may lead to brief setbacks, the general direction seems to be pointing upwards. Investors are advised to closely watch the $24.00 support level and the dollar’s trajectory for further insights into silver’s movement.

Technical Analysis

Silver (XAG/USD) confirmed yesterday’s closing price reversal top, putting more pressure on prices. Although we anticipate more weakness, the short-term trend won’t officially turn down until sellers take out the short-term bottom at $24.00.

The major support is the 200-day moving average at $23.33 and the 50-day moving average at $22.77.