Silver Prices Forecast: Bullish Sentiment Weakening Amidst Higher Yields, Firm Dollar

Silver Market Update

Silver prices are sharply lower on Thursday as traders awaited crucial U.S. economic data that could influence the Federal Reserve’s interest rate decisions.

At 11:09 GMT, XAG/USD is trading $31.47, down $0.50 or -1.57%.

Yields and Market Sentiment

The market sentiment has shifted towards the expectation that the Federal Reserve will maintain higher interest rates for a longer period. This stance increases the opportunity costs of holding non-yielding assets like silver, adding resistance to its price growth. On Thursday, U.S. Treasury yields dipped slightly with the 10-year Treasury yield falling by 3 basis points to 4.594%, and the 2-year Treasury yield dropping nearly 2 basis points to 4.966%.

Upcoming Economic Data

Investors are closely watching the release of key economic indicators, particularly the personal consumption expenditures (PCE) price index due on Friday. The PCE is the Fed’s preferred measure of inflation and will provide insights into future monetary policy. Alongside the PCE, data on personal spending and income, initial jobless claims, pending home sales, and a second estimate of Q1 GDP are also due for release.

Federal Reserve Outlook

Recent comments from Federal Reserve officials have suggested that interest rate cuts may not occur soon. Minneapolis Fed President Neel Kashkari indicated that significant improvements in inflation data would be required before supporting rate cuts. Persistent inflation has led to a reassessment of the timing and extent of future rate cuts, with markets now expecting fewer cuts in 2024.

Dollar and Global Market Reactions

The U.S. dollar reached a two-week high against major currencies on Thursday, driven by higher Treasury yields and a flight to safety amid a bond market rout. The strong dollar pressured the euro and sterling, which had been recovering from recent lows. The turmoil in the bond market also triggered a sell-off in global equities, with investors seeking refuge in safer assets.

Market Forecast

Despite the current pressures, silver prices are likely to remain supported by strong safe haven demand amid ongoing geopolitical instability and economic uncertainty. Analysts at ANZ highlight the robust industrial demand for silver and its attractive valuation compared to other assets, suggesting continued investment interest. Therefore, in the short term, the outlook for silver prices remains cautiously bullish, driven by its safe haven appeal and industrial applications.

Technical Analysis

XAG/USD is plunging on Thursday on profit-taking ahead of several key U.S. economic reports. Technically, there appears to be forming a wall of resistance at $32.48 – $32.52.

The short-term trend is up with minor support coming in at $31.07. The best support is $30.04. A trade through this level will change the short-term trend to down.

Downside pressure could accelerate under $30.04 with the 50-day moving average at $28.03 the next potential target. Conversely, an extended move over $32.52 could fuel a surge into the multi-year high at $34.35.