Silver Prices Forecast: Downside Risks Persist with Fed’s Hawkish Pivot

Silver Faces Pressure Ahead of Fed Meeting

Silver prices edged lower, narrowing its potential third consecutive monthly gain, as investor attention shifted to the upcoming Federal Reserve rate-decision meeting. The metal traded below $26.90 per ounce, although it remained in positive territory for the month, amidst anticipation of the Federal Open Market Committee’s (FOMC) decision on Wednesday. Expectations of a hawkish pivot from Fed officials following recent inflation data have influenced market sentiment.

At 12:41 GMT, XAG/USD is trading $26.45, down $0.69 or -2.54%.

Market Watch: Treasury Yields and US Dollar Strength

U.S. Treasury yields saw slight upticks on Tuesday, with the 10-year yield rising by around two basis points to 4.634% and the 2-year yield at 4.979%. A strong US dollar, which slumped Monday after the yen surged, has also impacted silver prices, making bullion less attractive to investors as the metal is priced in the currency.

Fed Policy and Market Sentiment

Swaps traders are pricing for the Fed to deliver at most two rate cuts by year-end, the fewest expected reductions since November 2023. Higher interest rates, typically negative for silver as it lacks interest yield, have influenced market trends. Despite delayed expectations for Fed cuts, silver has climbed over 12% this year, supported by strong demand from Asian markets and elevated geopolitical tensions.

Geopolitical Risks and Central Bank Demand

Silver remains poised for a third consecutive monthly gain, driven by geopolitical risks and central bank demand. While market focus has shifted to the Fed’s policy meeting, ongoing uncertainty surrounding geopolitical tensions continues to impact investor sentiment. Analysts anticipate potential downside pressure if Fed Chair Jerome Powell adopts a strongly hawkish stance, delaying rate cuts to the fourth quarter or next year.

Short-Term Forecast

Given the current market trend, silver prices may experience further pressure in the short term if the Federal Reserve signals a hawkish pivot. However, strong demand fundamentals and geopolitical tensions could provide support, with potential for upside movement once near-term pressures subside.

Technical Analysis

The short-term down trend was reaffirmed earlier today when sellers took out the bottom at $26.66. The downside momentum created by the move has put the 50-day moving average at $25.55 on the radar. Look for a technical bounce on the first test of this level, but be prepared for an acceleration into the 200-day moving average at $23.80 if it fails to hold.

On the upside, overcoming the short-term top at $27.73 could trigger a strong short-covering rally.