Silver Prices Forecast: Despite Friday’s Rebound, Way of Least Resistance is Down

James Hyerczyk
Published: May 24, 2024, 11:29 GMT+00:00

Key Points:

  • Silver prices are bouncing back after reaching an 11-year high and then experiencing a sharp decline. Investors are cautious but limit significant selloffs.
  • U.S. business activity accelerates, boosting the dollar and pressuring silver. Fed minutes show rate cut expectations are now lower than earlier in the year.
  • Fed policymaker Christopher Waller stresses the need for more favorable inflation data before supporting rate cuts, affecting market sentiment on silver.
Silver Prices Forecast

In this article:

Silver Prices Rebound After Sharp Decline

Silver prices are bouncing back on Friday following significant selloffs over the previous two sessions. Earlier in the week, silver had reached an 11-year high but faced downward pressure starting Wednesday when the Federal Reserve released its hawkish monetary policy meeting minutes.

At 11:21 GMT, XAG/USD is trading $30.55, up $0.42 or +1.40%.

Impact of Fed Minutes and Economic Data

On Thursday, silver prices fell to a more than one-week low, extending their decline for a second consecutive session. This drop was driven by investor concerns over the timing of U.S. interest rate cuts and strong U.S. business activity data. The dollar, benefiting from this positive economic outlook, reduced its losses, making silver less attractive as a safe-haven asset.

The recent U.S. business activity data indicated the highest level of acceleration in over two years, suggesting economic growth is picking up in the second quarter. This has led to profit-taking in silver, although the downside is expected to be limited.

Investor Positioning and Market Sentiment

Despite the recent correction in silver prices, investors remain cautious regarding the Federal Reserve’s outlook. Many investors have not heavily invested in silver during its recent rally, which limits the potential for a significant selloff. The correction is expected to be relatively shallow as a result.

Federal Reserve Rate Cut Expectations

The Federal Reserve’s latest meeting minutes revealed discussions about maintaining current interest rates, with the possibility of future hikes. Market expectations for rate cuts have diminished, with only 35 basis points of easing anticipated by year-end, down from the near seven cuts predicted earlier this year.

Fed policymaker Christopher Waller emphasized the need for several more months of favorable inflation data before supporting any rate cuts. With the upcoming U.S. presidential election, it is increasingly likely that the Fed will adopt a cautious approach, reducing the likelihood of significant rate cuts in the near term.

Dollar Strength and Inflation Concerns

The dollar is poised for its largest weekly gain in a month-and-a-half, driven by strong U.S. economic data. May’s business activity figures showed robust growth, and manufacturers reported rising input prices, leading to a reevaluation of interest rate cut expectations and higher government bond yields.

Minutes from the Fed’s last meeting highlighted an ongoing debate among policymakers about whether current rates are sufficiently restrictive to curb inflation. Traders have now pushed the timing of the first Fed rate cut to December, with only 36 basis points of cuts priced in for 2024.

Market Forecast: Bearish Outlook for Silver

Given the current economic data and the Fed’s cautious stance on rate cuts, the short-term outlook for silver remains bearish. The strength of the dollar and reduced expectations for near-term rate cuts are likely to continue to exert pressure on silver prices. Traders should prepare for continued volatility as the market adjusts to these developments.

Technical Analysis

Daily Silver (XAG/USD)

XAG/USD is edging higher on Friday, but the market is still poised to close significantly lower for the week.

Currently, the daily chart suggests the way of least resistance is down. A trade through $30.06 will signal a resumption of the sell-off with bearish traders setting their sights on the uptrending 50-day moving average at $27.39.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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